Patient Protection and Affordable Care Act - Series I
Welcome to our first installment of the PPACA Snap Shot for Small Businesses. Some of the items discussed may not directly impact you/your company/your clients at this time, however, it’s important to have some clarity about what is being discussed in the news and other sources.
Topics covered in PPACA Series I:
- 2014 Small Business Health Care Tax Credit
- Wellness Grants
- W2 reporting of Health Care premiums
Topics that will be covered in PPACA Series II:
- Small Business Exchange aka “The SHOP” (Small Business Health Options Program)
- Individual Exchange
- Employers obligation to notify employees of affordable option in the marketplace
Did you know?
- Employers with fewer than 50 employees are exempt from the employer mandate to provide affordable health care to their employees. This also means that there are no penalties assessed if coverage is not offered or if employees receive subsidies from the Exchange. However, while this may seem like a “get out of jail free card”, it’s important to understand that there are many resources to help small employers maintain or begin to provide coverage to their employees. As of 2014, most individuals will fall under the mandate to have an “essential benefit plan” in place. To stay competitive in the market place, attract and retain workers, it is going to be a critical element to offer such options to employees.
Small Business Health Care Tax Credit
(Main source: www.irs.gov)
- How will the credit make a difference for you?
For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014. Additional information about the enhanced version will be added to IRS.gov as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.
Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15 percent credit, you save … $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.
Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.
There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.
And finally, if you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.
- Can you claim the credit?
Now that you know how the credit can make a difference for your business, let’s determine if you can claim it.
To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 a year.
Let us break it down for you even more.
You are probably wondering: what is a full-time equivalent employee. Basically, two half-time employees (working less than 30 hours per week) count as one full-time employee. Here is an example, 20 half-time employees are equivalent to 10 full-time employees. That makes the number of FTEs 10 not 20.
Now let’s talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10 – the number of FTEs – and the result is your average wage. The average wage would be $20,000.
Also, the amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.
If you need assistance determining if your small business or tax exempt organization qualifies for the credit, speak to your accountant for further guidance.
- How do you claim the credit?
You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. For detailed information on filling out this form, see the Instructions for Form 8941.
If you are a small business, include the amount as part of the general business credit on your income tax return.
If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don't ordinarily do so.
Don’t forget … if you are a small business employer you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit.
- Wellness and prevention is the new model for health care
Maintaining good health is an ongoing process. Wellness is about paying attention to one's health before something happens. Not only do wellness programs prevent illness, they also improve the bottom line through reduced absenteeism and health care costs and increased productivity and profits. Promoting education, awareness and the programs that help employees thrive are being strongly promoted under the health care law.
According to a case study conducted by the Centers for Disease Control and Prevention, the indirect costs of poor health – including absenteeism, disability and reduced work output – may be several times higher than direct medical costs. In fact, productivity losses related to personal and family health problems cost U.S. employers $1,685 per employee per year, or $225.8 billion annually.
Workforce health programs have the potential to promote healthy behaviors; improve employees' health knowledge and skills; help employees get necessary health screenings, immunizations and follow-up care; and reduce their on-the-job exposure to substances and hazards that can cause diseases and injuries. Furthermore, successful workforce health programs can save $2.43 for every $1 spent.
To encourage a culture of prevention, incentives have been created to encourage workplace health programs that promote healthy behaviors, improve employees’ health knowledge and skills, help employees get necessary health screenings and follow-up care and more.
- PPACA’s Wellness integration
As passed in the PPACA, employers may become eligible to receive grants in order to implement wellness programs. In order to be eligible for the grants, the program must meet certain guidelines.
In general, if employers are eligible to receive the wellness grants, it will allow employers to implement a reward program of up to 30% of the cost of coverage for the employees who participate.
While this has been passed in the bill, the full details of the grants have yet to be released for full implementation as said to take place in 2014.
Pending the full details, this could potentially be a great opportunity for employers to reduce their financial obligation and encourage a healthy atmosphere in the workplace.
- Protecting consumers
In order to protect consumers from unfair practices, the proposed regulations would require health-contingent wellness programs to follow certain rules, including:
- Programs must be reasonably designed to promote health or prevent disease. To be considered reasonably designed to promote health or prevent disease, a program would have to offer a different, reasonable means of qualifying for the reward to any individual who does not meet the standard based on the measurement, test or screening. Programs must have a reasonable chance of improving health or preventing disease and not be overly burdensome for individuals.
- Programs must be reasonably designed to be available to all similarly situated individuals. Reasonable alternative means of qualifying for the reward would have to be offered to individuals whose medical conditions make it unreasonably difficult, or for whom it is medically inadvisable, to meet the specified health-related standard.
- Individuals must be given notice of the opportunity to qualify for the same reward through other means. These proposed rules provide new sample language intended to be simpler for individuals to understand and to increase the likelihood that those who qualify for a different means of obtaining a reward will contact the plan or issuer to request it.
There are several companies that focus on helping employers meet these requirements. For example, FirstVitals® is just one of the many private company’s available to help maximize the potential for any established program. Please feel free to browse their site or contact them directly for more information. www.firstvitals.com
W2 reporting requirements
- At this point, if a company files less than 250 W2s for the prior year, they are exempt from the W2 reporting requirements until further guidance from the IRS is released. You will be notified in advance in order to meet these requirements should they include employers with W2 filings of less than 250.
- Jolene Bibian
Leon Rousso and Associates