Portions of the Affordable Care Act that apply to small businesses are set to take effect on Oct. 1. Are you ready?
With different dates, guidelines, numbers, and requirements floating around, it can be tough to discern what you really need to do — and when. Here are the answers to a few frequently asked questions.
Does my company qualify as a “small business” under the Affordable Care Act?
For the purposes of health care reform, a small business is defined as one that has 50 or fewer “full-time equivalent” employees, or FTEs. Although state definitions may vary, the 50-or-fewer guideline is used to determine whether a business is eligible to participate in the Small Business Health Options Program Marketplace.
The SHOP Marketplace, which aims to simplify the process of buying health insurance, will be open for enrollment from Oct. 1, 2013, to March 31, 2014.
Is my business eligible for health care reform tax credits?
One of the main benefits of health care reform is that some companies participating in the SHOP Marketplace will qualify for tax credits.
According to OurBusinessMajority.org, small businesses are deemed “qualified employers” if they meet these criteria:
- Have fewer than 25 FTEs for the tax year
- Pay average annual wages of less than $50,000 per FTE
- Pay a minimum of 50 percent of the insurance premiums (a “qualified arrangement”) for FTEs
The tax breaks could cover up to 50 percent of what your business pays for health care premiums: You qualify for the full credit if you have 10 or fewer FTEs. You’re eligible for a partial credit if you have 10 to 25 FTEs.
Is my small business required to participate?
No business is actually required to offer health insurance coverage to its employees under the Affordable Care Act. Instead, the legislation creates a system of incentives and penalties — such as the aforementioned tax breaks — to encourage small-business participation. No company with fewer than 50 FTEs will be penalized for noncompliance.
If you’re self-employed as a sole proprietor, you’re treated as an individual rather than a small business. That means you can’t use the SHOP Marketplace, but you can get coverage through the individual Health Insurance Marketplace, which may present similar cost savings.
What’s the penalty for noncompliance?
Only small businesses with more than 50 FTEs need to worry about paying penalties if they don’t offer adequate health care benefits to employees by Jan. 1, 2015. Sole proprietors who don’t have health care insurance will be penalized at the same rates as individuals who fail to obtain coverage in 2014:
- $95 per adult
- $47.50 per child
- $285 per family, or 1 percent of the household’s income, whichever is greater
There are a lot of myths and misunderstandings about health care reform, most notably the idea that all businesses, including small ones, are required to participate. The only entrepreneurs that must obtain insurance are those who don’t already pay for adequate coverage for themselves and their families.