Employers with Fewer Than 25 Employees

Key Provisions Under the Affordable Care Act for Employers with Fewer Than 25 Employees

Some of the provisions that may impact employers with fewer than 25 employees include:

  • Small Business Health Care Tax Credit

The Small Business Tax Credit helps small businesses afford the cost of health care coverage for their employees and is specifically targeted for those businesses with low- and moderate-income workers.  Businesses that have fewer than 25 full-time equivalent employees, pay average annual wages below $50,000 (indexed annually for inflation), and contribute a uniform 50% or more toward employees’ self-only health insurance premiums may qualify for the small business tax credit.  As of 2014, this credit is available to those eligible small businesses that purchase coverage for their employees through the Small Business Health Options Program (SHOP), described below, and may be worth up to 50% of the employer’s premium costs (35% for tax-exempt employers).  Use this Tax Estimator tool to help determine if you qualify and what the credit may look like for your business.  

  • Small Business Health Options Program (SHOP)

Small employers looking to provide coverage for their employees can do so through the Small Business Health Options Program (SHOP), part of the new Health Insurance Marketplaces.  SHOP is open to those employers with up to 50 full-time equivalent (FTE) employees and offers small employers increased purchasing power to obtain a better choice of high-quality coverage.  SHOP also pools risk for small groups and reduces administrative complexity, thereby helping to reduce costs.  In addition, if you offer your employees coverage through the SHOP and meet other eligibility requirements, you may be able to claim the Small Business Tax Credit worth up to 50%.  Enrollment in SHOP is offered anytime during the year.  For more information, visit Healthcare.gov or call the SHOP Call Center at 1-800-706-7893 (TTY users: 1-800-706-7915), Monday through Friday, 9 a.m. to 7 p.m. EST.  You can also use the SHOP FTE Calculator to determine if you meet the size requirements for SHOP.

  • Employer Health Care Arrangements (Employer Payment Plans)

Employer health care arrangements, also known as employer payment plans, generally include those arrangements where the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace).  Under IRS Notice 2013-54, such arrangements do not satisfy the market reforms under the Affordable Care Act and may be subject to $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code. Small employer temporary relief from excise tax: Under IRS Notice 2015-17, small employers with less than 50 full-time (including full-time equivalent) employees that offer employer payment plans get temporary relief from the excise tax for 2014 and through June 30, 2015. For more information about these types of arrangements and the temporary relief for small employers and certain other entities, including S corporations, refer to IRS’s FAQs.  

  • Summary of Benefits and Coverage (SBCs) Disclosure Rules

Employers are required to provide employees with a standard “Summary of Benefits and Coverage” form explaining what their plan covers and what it costs.  The purpose of the SBC form is to help employees better understand and evaluate their health insurance options.  Penalties may be imposed for non-compliance.  For more information, visit http://www.dol.gov/ebsa/healthreform/regulations/summaryofbenefits.html.

  • Medical Loss Ratio Rebates

Under the ACA, insurance companies must spend at least 80% of premium dollars on medical care rather than administrative costs.  Insurers who do not meet this ratio are required to provide rebates to their policyholders, which is typically an employer who provides a group health plan.  Employers who receive these premium rebates must determine whether the rebates constitute plan assets.  If treated as a plan asset, employers have discretion to determine a reasonable and fair allocation of the rebate.  For more information on the federal tax treatment of Medical Loss Ratio rebates, refer to IRS's FAQs.

  • Limits on Flexible Spending Account Contributions

For plan years beginning on or after January 2013, the maximum amount an employee may elect to contribute to health care flexible spending arrangements (FSAs) for any year is capped at $2500, subject to cost-of-living adjustments.  Note that the limit only applies to elective employee contributions and does not extend to employer contributions.  To learn more about FSA Contributions, as well as what is excluded from the cap, refer to this document provided by the IRS.

  • Additional Medicare Withholding on Wages

Effective January 1, 2013, ACA increases the employee portion of the Medicare Part A Hospital Insurance (HI) withholdings by .9% (from 1.45% to 2.35%) on employees with incomes of over $200,000 for single filers and $250,000 for married joint filers.  It is the employer’s obligation to withhold this additional tax, which applies only to wages in excess of these thresholds.  The employer portion of the tax remains unchanged at 1.45%.

  • New Medicare Assessment on Net Investment Income

Effective January 1, 2013, a 3.8% tax will be assessed on net investment income such as taxable capital gains, dividends, rents, royalties, and interest for taxpayers with Modified Adjusted Gross Income (MAGI) over $200,000 for single filers and $250,000 for married joint filers.  Common types of income that are not investment income are wages, unemployment compensation, operating income from a non-passive business, Social Security Benefits, alimony, tax-exempt interest, and self-employment income.

  • 90-Day Maximum Waiting Period

As of January 1, 2014, individuals who are eligible for health coverage will not have to wait more than 90 days to begin coverage.  HHS, IRS, and the Department of Labor have issued final rules on how employers should apply the 90-day rule.

  • Workplace Wellness Programs

The ACA creates new incentives to promote employer wellness programs and encourage employers to take more opportunities to support healthier workplaces.  Health-contingent wellness programs generally require individuals to meet a specific standard related to their health to obtain a reward, such as programs that provide a reward to employees who don’t use, or decrease their use of, tobacco, and programs that reward employees who achieve a specified level or lower cholesterol.   Under final rules that took effect on January 1, 2014, the maximum reward to employers using a health-contingent wellness program increased from 20 percent to 30 percent of the cost of health coverage.  Additionally, the maximum reward for programs designed to prevent or reduce tobacco use is as much as 50 percent.  The final rules also allow for flexibility in the types of wellness programs employers can offer.  For more information visit DOL.gov

  • Information Reporting on Health Coverage by Self-Insured Employers

Beginning in 2015, the Affordable Care Act provides for new information reporting by employers of any size that sponsor self-insured plans.  (Section 6055 rules). Separate reporting requirements apply to those employers that have 50 or more full time or full-time equivalent employees.  (Section 6056 rules).  Under Section 6055 rules, self-funded employers, issuers, and other parties that provide health coverage must submit new reports to the IRS detailing information for each covered individual. The first of these reports must be filed in early 2016.  Refer to these Q&As from IRS for more information.

Find Plan Information in Your Area

Find and compare Marketplace health plans in your area by using this interactive tool at Healthcare.gov.

Timeline of Provisions 

The Affordable Care Act timeline provided by the U.S. Department of Health and Human Services includes the next steps you can take to implement the provisions.