The ACA and Your Business Taxes: A Refresher

The bill to repeal and replace the Affordable Care Act (ACA) has been withdrawn and it’s uncertain whether there will be any other health care reform legislation this year. We thought this would be a good time to review some of the tax-related ACA provisions affecting businesses:

Small Business Tax Credit. Qualifying small employers can claim a credit to cover a portion of the cost of premiums paid to provide health insurance to employees. The maximum credit is 50% of premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium.  However, small employers had to purchase coverage through a state-run insurance exchange to be eligible for the credit.

Potential Penalties for Not Offering Appropriate Coverage. Applicable large employers (ALEs) — those with at least 50 full-time employees (or the equivalent) — are required to offer full-time employees affordable health coverage that meets certain minimum standards. If they don’t, they can be charged a penalty if just one full-time employee receives a tax credit for purchasing his or her on coverage through a health care marketplace. This is sometimes called the “employer mandate.”  Since most small businesses have less than 50 full-time employees, this has little impact on them.

Potential Penalties for Reimbursing Employees Health Insurance    The IRS has issued a guidance that eliminates an employer’s ability to offer employer pretax reimbursement of individual insurance premiums with a penalty of $100 per participant per day.  While it is doubtful how or if this will be enforced, you may want to consider other alternatives.

Healthcare Cost Reporting. The ACA generally requires employers who filed 250 or more W-2 forms in the preceding year to annually report to employees the value of health insurance coverage they provide. The reporting requirement is informational only; it doesn’t cause health care benefits to become taxable.

Additional 0.9% Medicare Tax. This applies to:

  • Wages and/or self-employment (SE) income above $200,000 for single and head of household filers, or
  • Combined wages and/or SE income above $250,000 for married couples filing jointly ($125,000 for married couples filing separately).

While there is no employer portion of this tax, employers are responsible for withholding the tax once an employee’s compensation for the calendar year exceeds $200,000, regardless of the employee’s filing status or income from other sources.

Cap on Contributions to FSA Health Care Accounts. The Flexible Spending Account (FSA) cap is indexed for inflation. For 2017, the maximum annual FSA contribution by an employee is $2,600.

There’s also one significant change that hasn’t kicked in yet: Beginning in 2020, the ACA calls for health insurance companies that service the group market and administrators of employer-sponsored health plans to pay a 40% excise tax on premiums that exceed the applicable threshold, generally $10,200 for self-only coverage and $27,500 for family coverage. This is commonly referred to as the “Cadillac tax.”

The ACA remains the law, at least for now. Contact us if you have questions about how it affects your business’s tax situation.

Serving all of California since 2001