Resources for California Employers to Understand the Requirements Under the Affordable Care Act

In January 2016, the marketplace for Covered California for Small Business expanded to include employers with 100 or fewer full-time equivalent (FTE) employees. Additionally, the Affordable Care Act required applicable large employers, or employers with 50 or more FTE employees, to offer affordable health coverage that met a minimum standard or pay a “shared responsibility” penalty. Understanding whether you are required to offer health coverage is important for you to know as a business owner, and it can be confusing.

You might ask:

• What’s an FTE employee, and how do I calculate how many I have?
• How do I determine whether the law requires me to offer health coverage?
• What is my shared responsibility payment if I do not offer coverage?
• How do I know if my company is eligible for Covered California for Small Business?

Covered California for Small Business is here to help. Recently, the IRS released multiple tools to assist employers in determining FTE employee counts, how to determine if you are an applicable large employer, and what your shared responsibility would be for not offering Affordable Care Act-compliant health benefits. Check out the following resources for more information:

2016 Employer Shared Responsibility Provision Estimator - Including FTE Calculator
IRS ACA Estimator Tools for Individuals and Employers
IRS ACA Employer Shared Responsibility Webinars

To learn more about offering Affordable Care Act-compliant health benefits through Covered California for Small Business, visit CoveredCA.com/ForSmallBusiness or call us at (844) 332-8384.

The 2015 version of Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and instructions used by employers with 50 or more full-time employees (ALE member) are now available on the IRS website. Form 1095-B, Health Coverage, and instructions primarily used by insurers and health coverage providers, including employers that sponsor self-insured plans, have been released as well. The related document transmittal Forms 1094-B and 1094-C are also available on the IRS website.

The health care law requires certain employers and providers to submit the 2015 forms to the IRS and individuals in early 2016. Though the forms were available for voluntary use in tax-year 2014, the upcoming tax season will be the first time that reporting is mandatory.

Form 1095-C: https://www.irs.gov/pub/irs-prior/f1095c--2015.pdf

Instructions: https://www.irs.gov/pub/irs-prior/i109495c--2015.pdf

The following section is for informational purposes only. The answers are adapted from the Employer Shared Responsibility provisions of title 26 U.S. Code § 4980H of the Internal Revenue Code and IRS resources: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions

For 2015 and after, employers employing at least a certain number of employees (generally 50 or more full-time employees or a combination of full-time and part-time employees that equal 50 or more full-time equivalent employees (FTEs) will be subject to the Employer Shared Responsibility provisions, including employer shared responsibility payments, under section 4980H of the Internal Revenue Code (added to the Code by the Affordable Care Act). As defined by the statute, a full-time employee is an individual employed on average at least 30 hours of service per week. An employer that meets the 50 full-time employee threshold is referred to as an applicable large employer (ALE).

Under the Affordable Care Act’s Employer Shared Responsibility provisions, certain employers called applicable large employers or ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS.

All types of employers can be ALEs, including tax-exempt organizations and government entities.

The Employer Shared Responsibility provisions became effective on Jan. 1, 2015, but transition relief from certain requirements is available.

For Basic Information on Employer Shared Responsibility Provision information: Employer Shared Responsibility Provisions

For information on Transition relief: https://www.irs.gov/Affordable-Care-Act/Employers/Transition-Relief

Reporting Information: ALEs have information reporting responsibilities regarding minimum essential coverage offered to employees. These responsibilities require employers to send reports to employees and to the IRS on new forms the IRS created for this purpose. For more information, see: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions.

Determining if an employer is an applicable large employer (ALE): If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is an ALE for the current calendar year, and is therefore subject to the employer shared responsibility provisions and the employer information reporting provisions.

If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer shared responsibility provisions, including employer shared responsibility payments, or the employer information reporting provisions for the current year.

For more information, see: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions.

An ALE member may choose either to offer affordable minimum essential coverage that provides minimum value to its full-time employees (and their dependents) or potentially owe an employer shared responsibility payment to the IRS. An ALE member may be subject to one of two employer shared responsibility payments, but not both, and the two types of payments are calculated differently.

The employer offers health coverage to all or at least 95% of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either inadequate or unaffordable to the employee.

1. Employer Shared Responsibility payment for failure to offer Minimum Essential Coverage (MEC)
    

   The employer does not offer health coverage or offers coverage to fewer than 95% of its full-time employees and the dependents of those employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace, including Covered California;

2. OR
3. Employer Shared Responsibility payment for failure to offer affordable Minimum Essential Coverage that provides minimum value.

In general, a full-time employee could be eligible to receive the premium tax credit if:

1. the minimum essential coverage the employer offers to the employee is not affordable;
2. the minimum essential coverage the employer offers to the employee does not provide minimum value; or
3. the employee is not one of the at least 95 percent of full-time employees offered minimum essential coverage.

https://www.irs.gov/Affordable-Care-Act/Employers/Employer-Shared-Responsibility-Provisions

Calculations: For more information on the calculations and circumstances in which an ALE could owe an employer shared responsibility payment, visit the IRS ESRP information page: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions.

Employers that employ fewer than 50 full-time employees (including full-time equivalents) in their businesses are not subject to the Employer Shared Responsibility provisions. The vast majority of businesses fall below this threshold.

For more information see: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions

Employers of fewer than 50 full-time employees (including full-time equivalents) can find more information from the IRS here: https://www.irs.gov/affordable-care-act/employers/affordable-care-act-tax-provisions-for-small-employers

To be subject to the employer shared responsibility provisions for a calendar year, an employer must be an applicable large employer. To be an applicable large employer, an employer must have employed, during the previous calendar year, at least 50 full-time employees or a combination of full-time employees and part-time employees (referred to as full-time equivalent employees) that equals at least 50. Both to determine its number of full-time employees and to determine its number of full-time equivalent employees, an employer must determine the hours of service of each of its employees.

For examples of ALE determination calculations and more information, see: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions.

For more information, see: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions.

The terms “seasonal worker” and “seasonal employee” are both used in the employer shared responsibility provisions but in two different contexts.

The term “seasonal worker” is relevant for determining whether an employer is an applicable large employer subject to the Employer Shared Responsibility provisions. Seasonal workers are workers who perform labor or services on a seasonal basis, as defined by the Secretary of Labor, and include retail workers employed exclusively during holiday seasons. For this purpose, employers may apply a reasonable, good faith interpretation of the term “seasonal worker.”

The term “seasonal employee” is relevant for determining an employee’s status as a full-time employee under the look-back measurement method.

For more information, see: https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions.

The Affordable Care Act does not mandate that ALE subsidize dependent coverage. It is only the offer that is mandated or the ALE could be subject to a penalty if one employee receives a tax subsidy through a health insurance marketplace such as Covered California.

For purposes of the employer shared responsibility provisions, a dependent is an employee’s child (including a child who has been legally adopted or placed for adoption) who has not reached the age of 26. Spouses are not considered dependents and neither are stepchildren or foster children.

For more information, see: https://www.irs.gov/Affordable-Care-Act/Employers/Employer-Shared-Responsibility-Provisions.

An applicable large employer will not be subject to an employer shared responsibility payment solely because one, some, or all of its employees purchase health insurance coverage through a marketplace or enroll in Medicare or Medicaid. An employer will not be liable for an employer shared responsibility payment unless at least one full-time employee receives a premium tax credit. In general, an employee will not be eligible for a premium tax credit if the employer has offered that employee health coverage that is affordable and that provides minimum value, even if that employee rejects the offer of coverage and instead enrolls in coverage through a Marketplace or enrolls in Medicare or Medicaid. If no full-time employee receives a premium tax credit, the employer will not be subject to an employer shared responsibility payment.

For more information, see: https://www.irs.gov/Affordable-Care-Act/Employers/Employer-Shared-Responsibility-Provisions.

To avoid a potential employer shared responsibility payment, an applicable large employer must offer health coverage that is affordable and provides minimum value to its full-time employees and must offer health coverage to the dependents of those employees. For this purpose, a spouse is not a dependent. An applicable large employer will not be subject to an employer shared responsibility payment solely because it does not offer health coverage to an employee’s spouse or if the spouse purchases health insurance coverage through a Marketplace or enrolls in Medicare or Medicaid. An employer will not be liable for an Employer Shared Responsibility payment unless a full-time employee receives a premium tax credit. If no full-time employee receives a premium tax credit, the employer will not be subject to an Employer Shared Responsibility payment. Thus, even if an employee’s spouse receives a premium tax credit, the employer will not be subject to an employer shared responsibility payment.

If an applicable large employer offers health coverage that is affordable and that provides minimum value to a full-time employee’s spouse, the spouse will not be eligible for the premium tax credit.

For more information see: https://www.irs.gov/Affordable-Care-Act/Employers/Employer-Shared-Responsibility-Provisions

IRS Notice 2013-54 provides guidance on employee assistance programs or EAPs and on section 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Health Insurance Marketplace such as Covered California.

For more information on Health Reimbursement Arrangements (HRA), Health Flexible Spending Arrangements (FSA) and Certain Other Employer Healthcare Arrangements in Application of Affordable Care Act Market Reforms, see: https://www.irs.gov/Affordable-Care-Act/Affordable-Care-Act-Tax-Provisions For more information, see: https://www.irs.gov/pub/irs-drop/n-13-54.pdf

Talk to Covered California for Small Business, your plan representative, or your insurance agent to discuss your options.

For more information on Covered California for Small Business, visit www.CoveredCA.com/ForSmallBusiness or call (844) 332-8384.

For additional information on the employer mandate, please visit: https://www.irs.gov/Affordable-Care-Act/Employers/Employer-Shared-Responsibility-Provisions.

Directory of federal tax return preparers with credentials and select qualifications
Use this tool to research tax return preparers near you or to determine the type of credentials or qualifications held by a specific tax professional. All tax return preparers are not in this directory. This directory contains only those with a PTIN who hold a professional credential or have obtained an Annual Filing Season Program Record of Completion from the IRS: http://irs.treasury.gov/rpo/rpo.jsf.

Directory of tax preparers registered with the California Tax Education Council (CTEC)
Individuals who prepare federal or state tax returns in California must complete required education, maintain a $5,000 tax preparer bond, and register with the California Tax Education Council (CTEC): https://www.ctec.org/Payer/FindVerifyPreparer/

General Information for ALE
Applicable large employers can find complete list of resources and the latest news at the IRS Applicable Large Employer Information Center: https://www.irs.gov/Affordable-Care-Act/Employers/ACA-Information-Center-for-Applicable-Large-Employers-ALEs.

General Information for Small Employers
Employers of less than 50 full-time employees (including full-time equivalents) can find more information from the IRS here: https://www.irs.gov/Affordable-Care-Act/Employers/Affordable-Care-Act-Tax-Provisions-for-Small-Employers.