Beginning in 2017, large employers must begin offering health insurance to their employees and dependents to avoid paying very stiff fines.
First we need to understand what a large employer is. Starting in 2017 it applies to companies that have 50 or more full-time-equivalent employees (“FTE’s”). Up until this point, this law only applied to companies with 100 or more FTE’s. Full time means you are working at least 30 hours per week.
So now you have already figured out this is very expensive. If the average cost per employee is $500 per month and you have 50 FTE’s you are looking at insurance costs of $300,000!
The next reaction I receive from our clients is “Fine, I will pay the penalties”. Let’s look at both of the penalties that apply.
The first penalty applies if your company does not offer insurance to at least 95% of your FTE’s. The fine equals $2,160 times the number of employees in excess of 30 in 2016. Assuming the same facts as above, this penalty would be $43,200.
The second penalty applies if your company offers unaffordable health insurance. It is affordable if it does not exceed 9.66 of total household income (or this can be based on W-2 wages, or the federal poverty line). The plan must cover at least 60% of health care benefits and provide substantial coverage of inpatient hospital and physician services. You will be charged $2,340 for each FTE who purchases insurance through Obamacare and obtains a subsidy. Assuming the same facts as above, this penalty would be $70,200. This brings total penalties to $113,400.
We are not advising what you should do, but you need to do the math!
How does the IRS know? They will send out preliminary notices to employers informing them of their potential liability and give them a chance to respond before officially assessing the monetary payment. These letters are expected to begin happening at the end of this year. They are based on information provided to the IRS from the exchange, Forms 1095 and from the tax returns of employees who claimed the premium credit.
Adopted from The Kiplinger Letter 8/12/16