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The Employer Mandate Under the Affordable Care Act
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​By Kelly Tobin, GreenStone Senior Tax Accountant / Product Manager

Under the Affordable Care Act (ACA), the federal government, state governments, insurers, employers, and individuals have been given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. As a result, all employers that are “applicable large employers” including for-profit, non-profit, and government entity employers, are subject to the Employer Shared Responsibility provisions, also known as the "employer mandate."
Therefore, starting in 2015, if you are an applicable large employer that does not offer affordable health coverage that provides a minimum level of coverage to your full-time employees (and their dependents), you may be subject to an Employer Shared Responsibility payment. This may apply if at least one of your 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). Also, effective in 2015, applicable large employers are required to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage they offered.
You are an applicable large employer if you employ at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees). There is transition relief for employers that employ on average at least 50 full-time employees but fewer than 100 full-time employees on business days during 2014. These employers will not face a shared responsibility payment for 2015. However, this relief is only for 2015. The 50 full-time employee threshold applies to all employers in 2016.

An employer identifies its full-time employees based on each employee’s hours of service. An employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week. In a calendar month,130 hours of service is treated as the monthly equivalent of at least 30 hours of service per week. Part-time employees are calculated as full-time equivalents by taking the total hours worked by a part-time employees and dividing by 30. For example, an employer that employs 40 full-time employees (that is, employees employed 30 or more hours per week on average) and 20 employees employed 15 hours per week on average has the equivalent of 50 full-time employees, and would be an applicable large employer.
Seasonal workers are taken into account in determining the number of full-time employees, with certain exceptions. Also, for purposes of determining whether an employer is an applicable large employer, all employees are counted (subject to a limited exception for certain seasonal workers), regardless of whether the employees are eligible for health coverage from another source, such as Medicare, Medicaid, or a spouse’s employer.
The employer determines each year, based on the current number of employees, whether it will be considered an applicable large employer for the next year. For example, if an employer has at least 50 full-time employees (including full-time equivalents) for 2014, it is considered an applicable large employer for 2015.

The employee's share of health insurance premium payments must be considered affordable. If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5 percent of that employee’s annual household income, the coverage is not considered affordable for that employee. Because employers generally will not know their employees’ household incomes, employers can take advantage of one or more of the three affordability safe harbors, which include the employee's W-2 wages.

An employer's health insurance plan must provide minimum value to its employees. A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.

If an applicable large employer does not offer coverage or offers coverage to fewer than 70 percent of their full-time employees in 2015 (95 percent in 2016 and beyond) of its full-time employees (and after 2015 their dependents), it owes an Employer Shared Responsibility payment equal to the number of full-time employees the employer employed for the year (minus up to 30) multiplied by $2,000.

Starting in 2016, the ACA also requires applicable large employers to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offered. The required information is reported on Form 1095-C. The IRS will use the information provided on the 1095-C to administer the employer shared responsibility provisions of the ACA. 

The vast majority of businesses fall below the threshold that makes them subject to the Employer Shared Responsibility provisions. However, for applicable large employers, 2015 is a significant year in the implementation of the ACA. To avoid potential costly penalties, these employers should ensure they are in compliance with the provisions. If you are uncertain, contact one of GreenStone’s tax accountants.