Since 2010, the Affordable Care Act (or "ACA") has been offering certain small employers a tax credit when the employer pays a designated amount of the premium for an employee's health coverage. This is true for all eligible small employers, whether for-profit or tax-exempt.
This tax credit is still available in 2014. However, in order to be eligible for the credit, the employer must now purchase its coverage for its employees through the Small Business Health Options Program, (or "SHOP") Exchange.
This may come as a surprise for small employers, who have not been required to go onto the SHOP Exchange to provide coverage in prior years. Further, this may seem overly burdensome, since the SHOP Exchange operation has had a bumpy course and, even now, is still not up-to-speed. Nonetheless, the law as presently in effect requires SHOP Exchange participation in order for an eligible small employer to benefit from the ACA tax credit in the employer's plan year that begins in 2014.
While this E-Alert is not an exhaustive review of the tax credit, here are the basics:
- An eligible small employer is an employer that employs no more than 25 full-time equivalents (or "FTE") for a taxable year. Like other parts of the ACA, there is a formula for calculating full-time equivalents. Here, an employer would calculate the total hours of service for a taxable year and then divide that figure by 2,080. The result is the number of full-time equivalents for that employer for that tax year.
- Average annual wages per FTE cannot exceed $50,000.
- The employer must contribute at least 50% of the cost of the premium on behalf of each enrolled employee.
In return, the employer can claim a tax credit (for 2014) of 50% of the premium amount paid. Tax-exempt employers can claim a 35% credit. The credit can be taken for two consecutive years, with 2014 being the first countable year. Prior years are not counted in this determination.
How does an eligible New Hampshire employer obtain its eligibility determination for the credit in 2014?
New Hampshire is a "federally facilitated" state under the ACA. Therefore, it is not yet possible to apply for coverage through the SHOP Exchange online. It is, however, possible to do so via "direct enrollment" - by contacting an insurance agent, insurer or broker - and completing a paper application.
The SHOP Exchange will send the employer its eligibility determination after it receives the paper application. This process must occur, beginning in 2014, in order for an eligible employer to apply for and receive its tax credit.
The Devine, Millimet & Branch Labor, Employment and Employee Benefits Group offers this free bi-monthly E-Mail Alert service to provide information on recent developments in labor, employment and employee benefits law. If you have any questions about this e-mail, or if you know of anyone else who may be interested in receiving these alerts, please send us an email at firstname.lastname@example.org.
This E-Alert is provided for informational purposes only. It is not intended to serve as legal advice or legal opinion. Devine, Millimet & Branch, Professional Association makes no representations that this is a complete or final description or procedure that would ensure legal compliance and does not intend that the reader should rely on it as such. Our attorneys are available to assist employers in their compliance efforts and to represent employers in matters before state and federal courts and administrative agencies. For more information, please contact the attorney(s) listed or the Devine Millimet attorney with whom you regularly work.
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