Health Insurance Info for Colorado

news & commentary on health insurance and benefits

The Affordable Care Act Turns Four…

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The American Action Forum has published an eye-opening research paper on The Affordable Care Act, and comes to the conclusion that “regulatory costs exceed benefits by twofold”.

From the opening summary: “From a regulatory perspective, the law has imposed more than $27.2 billion in total private sector costs, $8 billion in unfunded state burdens, and more than 159 million paperwork hours on local governments and affected entities. What’s more troubling, the law has generated just $2.6 billion in annualized benefits, compared to $6.8 billion in annualized costs. In other words, the ACA has imposed 2.5 times more costs than it has produced in benefits.”

For the full report, including the employment impact and policy implications for small business, go here.

Benefits: the small employer tax credit for 2010

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The small employer tax credit, which was added to the Internal Revenue Code by the health care reform law, is effective for taxable years beginning in 2010.

Anthem has been gracious enough to produce a fact sheet on the tax credit.

For more details about whether you qualify for the tax credit and how to claim the credit,  talk with your tax advisor, due to the complexity associated with determining the amount of credit an employer is entitled to receive. Or, call me and I can help.

BYA: Credit for small employer health insurance premiums

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Q: “Would you mind enlightening me on the credit given to employers after March 2010 for up to 35% of employee health premiums if under 10 employees? I want to make sure I understand it correctly. Is this done by the insurance company or is this something the employer must do on their 941 report..”

Excellent question! The credit for small employer health insurance premiums was part of the Affordable Care Act passed earlier this year, and gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010, or, in IRS-speak in Notice 2010-82, “the credit is available for taxable years beginning after December 31, 2009”. The credit is, generally, 35% of premiums paid, claimed on Form 3800, General Business Credit.

The regulation deals with Form 8941, which allows some small employers a credit on a percentage of health insurance premiums paid for by the employer. That’s the easy part – the difficulty is in the details, which are described, based on the notice guidance, here. A summary flier is available, as well.

An “eligible small employer” uses Form 8941 to figure the credit. An eligible small employer must meed the following three requirements:

  1. You paid premiums for employee health insurance coverage under a “qualifying arrangement”.
  2. You had fewer than 25 “full-time equivalent employees” (FTEs) for the tax year.
  3. You paid average annual wages for the tax year of less than $50,000 per FTE.

FYI: A “qualifying arrangement” is generally considered to be a fully-insured health insurance policy that requires you to pay a uniform percentage, not less than 50%, of the premium cost for each enrolled employee’s health insurance coverage.

Note that, for a tax-year beginning in 2010 only, “a qualifying arrangement includes any arrangement that requires you to pay at least 50% of the premium cost for single (employee-only) coverage for each employee enrolled in any health insurance coverage you provide to employees, whether or not you pay a uniform percentage of the health care premium cost for each enrolled employee”. For tax years after 2010, you must pay at least 50% of the enrolled employees health insurance coverage, not excluding dependents.

In your question, you mention 10 employees as a limit. Actually, what happens is that the credit is reduced if you had more than 10 FTEs; if you had more than 25 FTEs for the tax year, your credit is reduced to zero. There is also an average annual wage limitation which further reduces your credit if  you paid average annual wages of more than $25,000 for the tax year. The exact details and worksheet for figuring the credit are in the instruction for Form 8941, linked above.

So, who isn’t an employee for purposes of this credit?

  1. The owner of a sole proprietorship,
  2. A partner in a partnership,
  3. A shareholder who owns, generally, more than 2% of an S Corp,
  4. A shareholder who owns more than 5% of the outstanding stock in a non-S Corp

Note that there are additional details that expand on the above limitations in the Notice and instructions, and there are additional limitations on leased employees, seasonal employees, household and other non-business employees (although you do not have to be in a business or a trade to qualify for the credit), and Ministers.

For employers who are offering HRA’s or HSAs, there could be confusion. The guidance allows high-deductible health insurance plans (HDHPs) as health insurance coverage; it does not allow payments to HSA accounts, as defined under Sec. 223(d)(1) of the IRS Code. Similar restrictions on FSAs and other self-insured plans apply to the credit.

Lastly, if you reward your employees with a richer health insurance plan than average, you credit is further reduced for tax years beginning in 2010. Example: for Colorado employers, the average annual premium must not exceed $4,972 for employee-only coverage, or $11,437 for family coverage.

UPDATE: IRS guidance on small business health care tax  credit

DISCLAIMER: I am not a tax consultant, and this information is considered to be general in nature. Check the links above to download the Notice, Form, and Instructions. Always check with a tax professional, as the above information may change.

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