The More You Know

The Affordable Care Act

The Affordable Care Act was enacted in 2010 and mandates health insurance reforms that impact small businesses. This section is dedicated to providing Paysmart clients with our current understanding of some of the key points of the ACA and how they may affect your business’s payroll reporting requirement.

This legislation’s rules and regulations change often so Paysmart recommends you discuss ACA provisions with your accountant, attorney, or HR rep.

When it comes to payroll and the ACA, there are two main questions that employers have to answer.

Are You a Controlled Group?

This controlled group exists when one or more businesses are connected through stock ownership with a common parent corporation (i.e. a chain), and

  • 80% of each corporation’s stock (except the common parent) is owned by one or more corporations in the group.
  • The parent corporation must own 80% of at least one other corporation.

This controlled group occurs in cases of two or more corporations where five or fewer common owners (individual, trust, estate) own directly or indirectly a “controlling interest” of each group and have “effective control.”

  • Controlling interest: Generally, this means 80 percent or more of the stock of each corporation (but only if such common owner owns stock in each corporation).
  • Effective control: Generally more than 50 percent of the stock of each corporation, but only to the extent such stock ownership is identical with respect to such corporation.

This controlled group consists of three or more organizations that are organized as follows:

  • Each organization is a member of either a parent-subsidiary or brother-sister group. 
  • At least one corporation is the common parent of a parent-subsidiary, and also a member of a brother-sister group.

What Size Employer Are You?

Plan Requirement: Employers who employ less than 25 full-time equivalent employees are not required to offer a plan.

Reporting Requirement:

  • Employers who offer an employer-sponsored plan are not required to meet any reporting requirements at this time.
  • Effective March 10, 2014, employers offering a self-insured plan must file section 6055.

Tax Credit: Employers with less than 25 FTEs may qualify for a tax credit.

  • To be eligible for the credit a small employer must pay premiums on behalf of its employees enrolled in a qualified health plan offered through the Small Business Health Options Program (SHOP) Marketplace.
  • The credit is available to eligible employers for two consecutive taxable years.
  • For more information on the tax credit visit www.IRS.gov.

Plan Requirement: Employers who employ less than 50 full-time equivalent employees are not required to offer a plan.

Reporting Requirement:

  • Employers who offer an employer-sponsored plan are not required to meet any reporting requirements at this time.
  • Effective March 10, 2014, employers offering a self-insured plan must file section 6055.

Plan Requirement: Employers with more than 50 FTEs are required to offer a plan to FTEs and may face a penalty if one is not offered.

Reporting Requirement:

  • Employers who offer an employer-sponsored plan are required to report the value of employer and employee cost in box 12 of form W-2.
  • Employers offering a self-insured plan must file section 6055.
  • ALEs need to provide Form 1095-C to their employees by January 31 every year to use when filing tax returns. Form 1094-C needs to be provided to be filed with the IRS as a summary of aggregate employer-level data, including FTE counts by month. Contact your payroll vendor for help with the monthly tracking.

Employer-Sponsored Plan

An employer-sponsored plan is group health insurance. Employer-sponsored plans can include a range of plan options including HMO and PPO as well as additional coverage such as dental, disability, and life. Some coverage under employer-sponsored plans must be reported on employee’s W-2s. For a list of what to report on the W-2 visit, Form W-2 Reporting of Employer-Sponsored Health Coverage.

Self-Insured Group Health Plan

Some employers choose to operate their own health insurance plan instead of going through an insurance carrier to purchase a fully-insured plan. The employer pays a third-party administrator to manage the plan while keeping the premium and paying the cost of claims and administration themselves.

Applicable Large Employer (ALE)

An employer that had an average of at least 50-full time employees (include full-time equivalent employees) during the prior year. For more information, visit www.IRS.gov.

Minimum Essential Coverage (MEC)

Qualifying health care coverage under an employer-sponsored plan.

Minimum Essential Coverage (MEC)

Qualifying health care coverage under an employer-sponsored plan.

Employer-sponsored coverage

  • Group health insurance coverage for employees under a governmental plan, plan offered in the state’s small or large group market, or grandfathered health plan)
  • Self-insured group health plan for employees
  • COBRA coverage
  • Retiree coverage

Individual health coverage

  • Insurance you purchase directly from an insurance company
  • Insurance purchased through the Marketplace
  • Insurance provided through a student health plan or university-funded student health plan
  • Catastrophic plans

Coverage under government-sponsored programs

  • Most Medicaid coverage
  • Children’s Health Insurance Program (CHIP)
  • TRICARE coverage (most types)
  • Comprehensive programs offered by the Department of Veterans Affairs
For a complete list of minimum essential coverage, visit Individual Shared Responsibility Provision.

Employer Shared Responsibility

ALEs must either offer affordable minimum essential coverage that provides minimum value to their full-time employees (and dependents) or potentially make an employer shared responsibility payment to the IRS if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace (Marketplace). The employer shared responsibility provisions are sometimes referred to as “the employer mandate” or “the pay or play provisions.” The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions. For more information, visit www.IRS.gov.

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