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William E. Hardy, CPA Principal Harris, Hardy & Johnstone, PC bhardy@hhjcpa.com 34 Years Experience PowerPoint Presentation
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William E. Hardy, CPA Principal Harris, Hardy & Johnstone, PC bhardy@hhjcpa.com 34 Years Experience. George G. Crowell, CPA, CITP Principal Harris, Hardy & Johnstone, PC gcrowell@hhjcpa.com 20 Years Experience. www.hhjcpa.com. SMALL EMPLOYER HEALTH INSURANCE CREDIT

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slide1

William E. Hardy, CPA

Principal

Harris, Hardy & Johnstone, PC

bhardy@hhjcpa.com

34 Years Experience

George G. Crowell, CPA, CITP

Principal

Harris, Hardy & Johnstone, PC

gcrowell@hhjcpa.com

20 Years Experience

www.hhjcpa.com

slide2

SMALL EMPLOYER HEALTH INSURANCE CREDIT

Do I Qualify for the Health Care Credit? Am I an Eligible Small Employer?

  • It depends
    • Do you have less than 25 FTEs?
    • Are the average wages of your employees less than $50,000?
    • If you meet the above criteria, then YES.
  • Are there any other requirements?
    • Generally must pay at least 50% of the Premium.
    • In 2010 – 2013, Health Insurance provided through a Qualifying Arrangement
    • Beginning in 2014, Health Insurance must be bought through a SHOP.
slide3

SMALL EMPLOYER HEALTH INSURANCE CREDIT

How does the credit work?

  • You receive a credit for a percentage of the EMPLOYER premiums paid.
    • In 2010 – 2013, up to 35% for ESEs and 25% for Tax-exempt Employers.
    • Beginning in 2014, up to 50% for ESEs and 35% for Tax-exempt Employers
    • For ESEs, credit is limited to regular income tax and AMT, can be carried back or forward
    • For Tax-exempt Employers, credit is refundable (must file 990-T)
  • Phase-outs
    • If you have between 10 and 25 employees, the credit is reduced.
    • If your average wages are between $25,000 and $50,000, the credit is reduced.
    • Credit reductions are combined if both situations apply.
slide4

SMALL EMPLOYER HEALTH INSURANCE CREDIT

How does the credit work?

  • What is an FTE or Full-Time Equivalent?
    • For every 2,080 employee hours working in a year you have one FTE.
    • If you have two employees, each who work 20 hours per week for the entire year, you have one FTE.
    • The following are not counted in the FTE calculation:
      • Owner of sole proprietorship
      • Partner in a partnership
      • > 2% shareholder in a S-Corporation
      • > 5% shareholder in a C-Corporation
      • Person who owns more than 5% of capital or profits in any other non-corporate business
      • Any family member or non-family member dependents of those above
      • Seasonal employees who work less than 120 days
slide5

SMALL EMPLOYER HEALTH INSURANCE CREDIT

How does the credit work?

  • What if I did not the claim credit in prior years, but I qualified?
    • You can amend any open years to claim the credit
    • If amending a pass-through entity (Partnership or S-Corp), the shareholders will also have to amend their returns
    • The following are not counted in the FTE calculation:
      • Owner of sole proprietorship
      • Partner in a partnership
      • > 2% shareholder in a S-Corporation
      • > 5% shareholder in a C-Corporation
      • Person who owns more than 5% of capital or profits in any other non-corporate business
      • Any family member or non-family member dependents of those above
      • Seasonal employees who work less than 120 days
slide7

SMALL EMPLOYER HEALTH INSURANCE CREDIT

Tax Years 2010-2013

Tax-exempt

Employers

slide9

SMALL EMPLOYER HEALTH INSURANCE CREDIT

2014 and Beyond

Tax-exempt

Employers

slide10

25 to 49 Employees

Am I subject to penalties?

  • No, as long as your FTE count does not exceed 49
  • May face penalties if you discriminate in your health insurance coverage, starting in 2015

Can purchase insurance from SHOPs, Small Business Options Program

slide11

25 to 49 Employees

Need to be especially careful as you approach 40 employees

  • Should track hours for each employee to make sure you do not reach or pass 50 FTEs
  • Will need to be more aware of whether independent contractors could qualify as employees
  • Make sure you include all related businesses in your FTE count

Will probably face higher premiums if you provide insurance for your employees

slide12

50 or more Employees – The Penalty Zone

Two potential penalties (Beginning in 2015):

  • §4980H(a) Penalty for not offering Minimum Essential Coverage
    • Employer does not offer affordable minimum essential coverage to at least 95% of its full-time employees (including dependents starting 2015) and at least one employee qualifies for the Premium Assistance Credit
  • §4980H(b) Penalty for not offering affordable Minimum Essential Coverage that provides minimum value
    • Employer does provide coverage to at least 95% of its full-time employees (including dependents starting in 2015), but the coverage is either unaffordable or does not provide minimum value
slide13

50 or more Employees – The Penalty Zone

§4980H(a) Penalty for not offering Minimum Essential Coverage

  • $2,000 for each full-time employee, over the 30 employee threshold
  • The penalty is calculated and paid on a monthly basis($2,000 ÷ 12 Months = $166.67 per month)
slide14

50 or more Employees – The Penalty Zone

§4980H(a) Penalty for not offering Minimum Essential Coverage - Example

In 2015, Able Automotive has 60 employees, who each work 40 hours a week (i.e., are full-time employees) every week in the year. Therefore, Able is an applicable large employer. Assume all employees have worked for Able for more than one year and were determined to be ongoing full-time employees who must be offered health insurance coverage for the 2015 calendar year. Able does not offer minimum essential health insurance coverage for the employees in the months January-March. Beginning in April, Able offers affordable minimum essential coverage for all full-time employees and their dependents. Ten full-time employees are certified to Able as having enrolled in a QHP in the individual market through the state insurance marketplace and received the premium assistance credit for January-March.Able'spenalty for not offering minimum essential coverage for the first quarter of 2015 is $15,000.30 [(60 full-time employees - 30 full-time employee threshold) × 3 months × $166.67 per month].

slide15

50 or more Employees – The Penalty Zone

§4980H(a) Penalty for not offering Minimum Essential Coverage - Example

NOTE: Although only 10 full-time employees received the premium assistance tax credit, Able’s penalty is based on 30 employees

(60 full-time employees – 30 full-time employee threshold)

slide16

50 or more Employees – The Penalty Zone

§4980H(b) Penalty for not offering affordable Minimum Essential Coverage that provides Minimum Value

  • $3,000 annually per employee, and will be adjusted for inflation beginning in 2015($250 per month x 12 months = $3,000)
  • Employer is subject to the penalty for each employee for whom the employer has received notification that the employee enrolled in a Qualified Health Plan (QHP) in the individual market through a state insurance marketplace for which a premium assistance credit or cost-sharing-reduction subsidy was allowed or paid to the employee
slide17

50 or more Employees – The Penalty Zone

§4980H(b) Penalty for not offering affordable Minimum Essential Coverage that provides Minimum Value

  • The total §4980H(b) penalty cannot exceed the penalty that would be calculated under §4980H(a)
slide18

50 or more Employees – The Penalty Zone

§4980H(b) Penalty for not offering affordable Minimum Essential Coverage that provides Minimum Value - Example

In 2015, Able Automotive (an applicable large employer) offers minimum essential coverage to its 60 full-time employees and their dependents. However, Able's coverage is not affordable. The state insurance marketplace notified Able that 25 full-time employees were paid a premium assistance credit to purchase insurance in a QHP in the individual market through the marketplace for the entire year.

Able'spenalty for offering unaffordable coverage for 2015 is $75,000 (25 full-time employees × 12 months × $250 per month). However, the penalty is capped at $60,001.20 [(60 full-time employees - 30-employee threshold) × 12 months × $166.67 per month]. This is the Section 4980H(a) penalty that would have applied had Able not offered minimum essential coverage insurance coverage for the entire year.

slide19

50 or more Employees – The Penalty Zone

§4980H(b) Penalty for not offering affordable Minimum Essential Coverage that provides Minimum Value - Example

NOTE: Affordability safe harbors are available that may provide relief from the §4980H(b) penalty with respect to some employees

slide20

50 or more Employees – The Penalty Zone

§4980H(b) Safe Harbors

  • Form W-2 Safe Harbor: Employee contribution <= 9.5% of Box 1 W-2 wages
  • Rate-of-pay Safe Harbor: Employee contribution <=9.5% of amount calculated below
    • Hourly employees: take hourly rate x 130 hours compared to required contribution for lowest-cost, self-only coverage
    • Salaried employees: monthly salary compared to required contribution for lowest-cost, self-only coverage
    • Employer cannot reduce hourly rate or salary during the year. Also, if coverage is offered at least one day of the month, the entire month is counted
slide21

50 or more Employees – The Penalty Zone

§4980H(b) Safe Harbors

  • Federal Poverty Line (FPL) Safe Harbor
    • Coverage is considered affordable if the employee’s monthly cost for the lowest-cost, self-only coverage does not exceed 9.5% of the FPL for a single individual
    • Annual FPL is divided by 12 for the monthly amount
    • Must use the most recently published poverty guidelines as of the first day of the plan year for the state in which the employee works
slide22

Individual Mandate – On an Island

Penalty for Remaining Uninsured

  • Minimum Essential Coverage is required to avoid the penalty (insurance purchased through the Exchange will qualify)
  • The penalty imposed on the uninsured under 18 is one-half of that imposed on adults
  • A taxpayer is responsible for providing coverage for someone if they are able to claim a personal exemption for that person
  • Some will be exempted from the penalty
slide23

Individual Mandate – On an Island

Penalty for Remaining Uninsured

The Individual Shared Responsibility Penalty

  • The per adult annual penalty is phased in:
    • 2014: Greater of 1% of applicable income or $95
    • 2015: Greater of 2% of applicable income or $325
    • 2016: Greater of 2.5% of applicable income or $695
    • 2017 and beyond: Indexed for inflation from $695
  • Applicable income = Excess of household income over the threshold filing amount
slide24

Individual Mandate – On an Island

Penalty for Remaining Uninsured

The Individual Shared Responsibility Penalty

  • The maximum household penalty is the greater of the annual percentage amount or 300% of the adult penalty
  • The penalty cannot exceed the cost of a bronze level plan
  • The penalty applies to any period essential coverage is not maintained (monthly)
  • The penalty is assessed through the Internal Revenue Code (no liens or levies allowed)
slide25

Individual Mandate – On an Island

Premium Assistance Credit

  • Credit available for those with incomes up to 400% of FPL, currently, $44,680 (single) $92,200 (family of four)
  • Insurance must be obtained through an exchange
  • Current year advanced credit based on current year income, if available
  • Generally, the prior year tax data is used to determine eligibility
  • Assistance Credit is trued up when current year’s tax return is filed
slide26

Individual Mandate – On an Island

Reduced Cost Sharing

  • Cost sharing is available for those with incomes up to 250% of FPL
  • Only available for in-network services, does not include non-covered services
  • Must be enrolled in a silver-level QHP
  • Total out of pocket is adjusted based on HHS guidelines
slide27

Individual Mandate – On an Island

Who is exempt from the Individual Shared Responsibility Penalty?

slide28

Individual Mandate – On an Island

Who is exempt from the Individual Shared Responsibility Penalty?

  • If the premiums exceed 8% of household income
  • Includes the AGI of dependents who are required to file a return
  • Does not include non-taxed Social Security benefits