Under the Affordable Care Act, small businesses have gained the ability to offer health insurance coverage to employees, while enjoying potential tax breaks for doing so. Meanwhile, larger businesses are required to offer health insurance, and are penalized with fines for failing to comply with the law.
It might seem as though the law draws a clear distinction between large and small businesses, but what about those in the middle? If your employment numbers skate on the edge of throwing you into a new category, you might wonder how hiring decisions will impact your health insurance requirements.
For the sake of clarity, the ACA describes four different business sizes:
- Self employed with no employees
- Fewer than 25 employees
- Between 25 and 50 employees
- More than 50 employees
When we talk about employees, we’re referring to “full time equivalent” employees. Under the ACA, FTEs are described as workers who perform at least 30 hours of work per week. However, if you have part time workers, this could complicate the picture somewhat. In that case, you will calculate your FTEs by adding your number of full-time employees to the number of part-time weekly hours, divided by 30. The formula looks like this:
Number of full-time employees + (part-time hours per week/30) = Your total FTEs
You already know if you’re self-employed without employees, so we’ll just focus on the other three categories.
Businesses with 25 or fewer FTEs can enroll in a health care program through the Small Business Health Care Options Program (or SHOP), and you could receive a tax credit (between 25 and 50 percent of premium costs) for doing so. However, you are not required by the ACA to offer insurance. Note: If you want to receive the tax credit, you can only do so by using SHOP.
Businesses with 25 to 50 FTEs are also eligible, though not required, to purchase a health insurance plan through SHOP. However, businesses in this size range are not eligible for a tax credit.
Finally, if you have 50 or more FTEs, you must offer health insurance coverage to 95 percent of your full-time employees and their dependents. If you fail to comply with the law, you will be taxed with a penalty.
Most large businesses in California are already complying with the ACA, but if you own a business with 50 or fewer full-time employees, you should still consider adding health insurance coverage. Your tax break could be larger than you think, so give us a call and we can show you all of the options available to you.