IRS Healthcare
The Affordable Care Act
The Patient Protection and Affordable Care Act (ACA) aims to transform the U.S. healthcare system by making affordable, quality health care accessible to all Americans. This long and very complicated law has been subject to many significant changes by the Obama Administration, Congress and the U.S. Supreme Court.
Given the ACA’s complexity and likelihood that it will undergo continuing modification, many businesses and individuals in the Virginia region and across the nation are uncertain about what the law requires of them. While the ACA is not a tax bill, the law includes a number of important tax provisions. These provisions are administered by the IRS and apply to small and large companies as well as individual taxpayers. Businesses and individuals who have questions about their obligations and responsibilities under the ACA should consult with an experienced tax attorney to develop effective compliance plans and strategies.
Large Businesses
A large portion of the responsibilities and obligations set forth in the ACA cover employers with 50 or more full-time equivalent employees. The IRS refers to these employers as “applicable large employers” or “ALEs.” Applicable large employers are subject to the ACA’s employer shared responsibility provisions which are often called “employer mandates” or “play or pay penalties.” These provisions require ALEs to provide “minimum essential coverage” to full-time employees and their dependents or pay a “shared responsibility payment” to the IRS. When a large employer fails to offer coverage and one or more of its employees receive a premium tax credit or cost-sharing subsidy for purchasing individual coverage in the healthcare marketplace, the employer will be subject to a tax penalty. This penalty is generally calculated by multiplying the number of full-time employees on the employer’s payroll (minus up to 30 employees) by $2,000.
In addition to meeting the minimum essential coverage requirements, applicable large employers must also submit an annual return to the Internal Revenue Service setting forth the health care insurance they provided to their employees. ALEs may also be required to report the value of the health coverage they provide to their employees on each employee’s W-2 form. Where a large employer provides self-insured coverage to employees, the employer must submit an annual return to the IRS. Additionally, large employers must withhold and report an Additional Medicare Tax (0.9 percent) on wages and compensation exceeding $200,000.
Small Businesses
While employers with 50 or less full-time equivalent employees are not subject to all of the large employer requirements, the ACA does include certain provisions that apply to small employers. The ACA allows small employers to obtain insurance coverage for their employees through the Small Business Health Options Program (SHOP) and certain small employers may be eligible to receive a health care tax credit. Like large employers, small employers may be required to withhold and report the Additional Medicare Tax (0.9 percent) on employee wages and compensation exceeding $200,000. Small employers may also be required to report the value of health care coverage they provide to their employees on each employee’s W-2 form and where an employer provides self-insured coverage for its employees, the employer must file an annual return reporting information about the coverage with the IRS.
Individual Taxpayers
The ACA’s Individual Shared Responsibility Provision requires individuals and each member of their family to obtain “minimum essential coverage.” Individuals who do not qualify for a health coverage exemption and fail to obtain coverage will be required to make “shared responsibility payment’ when filing their annual federal tax return. In general, the shared responsibility payment will be the greater of a percentage of the household’s income or a flat dollar amount capped at the national average premium for a bronze level health plan available on the healthcare marketplace. For 2015, the flat dollar amount penalty for a family was up to $975 and is expected to increase to up to $2,085 for 2016 and beyond. In addition to imposing penalties, the ACA also offers a premium tax credit to individuals with incomes below a certain level who purchase their health insurance coverage through the healthcare marketplace.
A Virginia Business Tax Attorney Can Help You Understand the ACA
Thorn Law Group is committed to helping businesses and individual taxpayers in Virginia and across the country navigate complex tax rules and regulations. Our firm regularly monitors important tax law developments so that we can assist businesses in designing employee benefit programs that meet the ACA’s evolving legal requirements. We also assist individual taxpayers in developing personal tax plans and strategies that meet ACA requirements.
If you have questions about the Affordable Care Act or would like to review a tax matter with an attorney at our firm, contact our Virginia office at 703-752-3752 or email ket@thornlawgroup.com.