Significant 2013 & 2014 Business Tax Implications Of Health Care Reform

by Chris Doolittle  on Monday, Sep. 10, 2012 12:00 am  

Chris DoolittleBKD LLP

Since 2010, a maximum credit of 35 percent (25 percent for tax-exempt employers) usually has been available to small business employers that cover at least 50 percent of the cost of single health care coverage for each employee, if the employer has fewer than 25 full-time equivalent employees and average wages of less than $50,000 per year.

The maximum credit increases to 50 percent in 2014 (35 percent for tax-exempt employers) but is only available to eligible employers that purchase health insurance coverage through a state exchange for a maximum of two years after 2014.

Implications: The credit can help offset the cost of employer-provided insurance. However, the calculation is complex and subject to phase-out limits, causing many seemingly small employers to receive a credit far less than the maximum. Additional time commitments are necessary for employers to obtain information to calculate the credit and for tax return preparers to complete the required forms.

Penalty for Not Providing Minimum Essential Coverage

In 2014, nondeductible penalties will be imposed on employers who have 50 or more full-time equivalent employees and do not provide minimum essential coverage, as defined by the Secretary of Health and Human Services, to full-time employees. The penalty is applicable if any of those employees are certified to the employer as having enrolled in a qualified health plan and receives a premium tax credit or cost-sharing reduction. The annual penalty is equal to $2,000 per full-time employee, assessed monthly ($166.67 per month), less a 30-employee exclusion.

Implications: To avoid penalties, employers with 50 or more full-time equivalent employees will need to adopt a health plan that meets the complex requirements. It could be more cost effective to pay the penalty than to incur the cost of health insurance, but competitors’ actions and the potential effect on employee morale also should be considered.

Article reprinted with permission from BKD, LLP, All rights reserved.



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