Information on Key Tax Provisions Affecting Employers
FS-2014-10, November 2014
The Affordable Care Act (ACA) contains several tax provisions that affect employers. Under the ACA, an employer’s workforce size is significant because this information determines which provisions apply.
The IRS is conducting an information campaign to educate taxpayers about some of the basics of the ACA. This campaign will include health care tax tips, YouTube videos and expanded ACA web pages on IRS.gov.
Determining Workforce Size
An employer’s size is determined by the number of its employees.
- An employer with 50 or more full-time employees or full-time equivalents is considered an “applicable large employer,” or ALE, under the ACA.
- For purposes of the employer shared responsibility provision, the number of employees a business has during the current year determines whether it is an ALE the following year. Employers make this calculation by averaging the number of employees they had throughout the year, which takes into account workforce fluctuations many employers experience.
Employers with Fewer than 50 Employees
- More than 95 percent of employers have fewer than 50 full-time employees or equivalents and are not subject to the employer shared responsibility provision
- Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year.
- If an employer has 50 or fewer employees, it can purchase health insurance coverage for its employees through the Small Business Health Options Program (SHOP).
- Employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the small business health care tax credit if they cover at least 50 percent of their full-time employees’ premium costs and generally, after 2013, if the coverage is purchased through the SHOP..
- All employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for the year 2015. Reporting in 2015 regarding coverage in the 2014 year is not required – it is optional.
Employers with 50 or More Employees
- Employers that have exactly 50 employees can purchase coverage for their employees through the SHOP.
- ALEs must file an annual return reporting whether they offered health coverage, and if so, what coverage they offered their full-time employees. The first returns are due to be filed in 2016 for the year 2015. Reporting is optional for 2014.
- Effective for calendar year 2015, ALEs with 100 or more full time or full time equivalent employees will be subject to the employer shared responsibility provision and therefore may have to make a shared responsibility payment. This applies to employers that do not offer adequate, affordable coverage to their full-time employees and one or more of those employees get a premium tax credit. The employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.
- As noted above, all employers, regardless of size, that provide self-insured health coverage must file an annual return reporting certain information for individuals they cover. The first returns are due to be filed in 2016 for the year 2015. Reporting is optional for 2014.
More information about these tax provisions can be found at IRS.gov/aca