The Obama Administration’s Fiscal Year 2014 Revenue Proposals include a proposal to expand the group of employers eligible for the Small Employer Health Care Tax Credit (Health Credit) enacted as part of the Patient Protection and Affordable Care Act (ACA) retroactive to January 1, 2013. See General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals pages 39-40.
Current Law
Under long-standing provisions of the Internal Revenue Code (Code), the cost to an employer of providing health coverage for its employees is generally deductible as an ordinary and necessary business expense for employee compensation and the value of employer-provided health coverage is not subject to employer-paid Federal Insurance Contributions Act tax. Meanwhile, unless the program violates the non-discrimination rules of Internal Revenue Code §105 or the employees are offered a choice in a manner that violates Code §125, employees are generally not taxed on the premiums or the value of employer-provided health coverage for themselves, their spouses and their dependents.
As an additional inducement for small employers to provide health coverage for low-income employees, the ACA created the Health Credit. During 2010 through 2013, the maximum credit is 35 percent (25 percent for tax-exempt employers) of the employer’s contributions to the premium. For 2014 and later years, the maximum credit percentage is 50 percent (35 percent for tax-exempts). The amount of the available credit recently was reduced as part of the reductions implemented under sequester.
To qualify for the Health Credit, the Code currently limits the availability of the Health Credit to amounts paid for health coverage for employees with average annual full-time equivalent wages of no more than $50,000 (indexed beginning 2014) by an employer that employs no more than 25 full-time equivalent employees during the taxable year and pays at least 50 percent of the premium for coverage. For taxable years beginning in 2010 through 2013, the credit is available for any health insurance coverage purchased from an insurance company licensed under State law. For taxable years beginning after December 31, 2013, the credit is available only for health insurance purchased through a Health Insurance Exchange and only for a maximum coverage period of two additional consecutive taxable years, beginning with the first year in which the employer or any predecessor first offers any qualified plans to its employees through an Exchange.
While for-profit firms may claim the tax credit as a general business credit and may carry the credit back for one year and carry the credit forward for 20 years, the Health Credit only currently is available for tax liability under the alternative minimum tax. For tax-exempt organizations, the credit is refundable and is capped at the amount of income tax withholding for employees and both the employee and employer portion of the health insurance (Medicare) payroll tax.
Eligible employer contributions are limited by the amount the employer would have contributed under the State average premium. Also, the credit is phased out on a sliding scale between 10 and 25 full-time equivalent employees as well as between an average annual wage of $25,000 (indexed) and $50,000 (indexed). Because the reductions are additive, an employer with fewer than 25 full-time employees paying an average wage less than $50,000 might not be eligible for any tax credit.
Proposed Change
The proposal would expand the group of employers who are eligible for the credit to include employers with up to 50 full-time equivalent employees and would begin the phase-out at 20 full-time equivalent employees for taxable years beginning after January 31, 2012. In addition, there would be a change in the coordination of the phase-outs based on average wage and the number of employees (using a formula that is multiplicative rather than additive) so as to provide a more gradual combined phase-out.
According to the Administration, the proposal is intended to ensure that employers with fewer than 50 employees and an average wage less than $50,000 would be eligible for the credit, even if they are nearing the end of both phase-outs. The proposal would also eliminate the requirement that an employer make a uniform contribution on behalf of each employee (although applicable nondiscrimination laws will still apply), and would eliminate the limit imposed by the State average premium.
The Administration says expanding eligibility for the credit and simplifying its operation would:
- Increase the utilization of the tax credit
- Encourage more small employers to provide health benefits to employees and their families
- Incent small employers to join an Exchange, thereby broadening the risk pool
- Enhance fairness among employers
- Remove complexity and potential discouragement to small employers claiming the Health Credit resulting from the uniform contribution requirement and the State premium contribution limit.
Health Care Reform Coping Steps For All Businesses
The proposal to expand the Health Credit comes as many employers continue to struggle to understand the potential implications of ACA’s health care reforms sand determine how to respond.
For tips about coping with health care reform for employers, check out 13 Employer Tips For Responding To Health Care Reform Now and other resources in the Solutions Law Press, Inc. HR & Benefits Update at www.solutionslawpress.com.
For Help or More Information
If you need help reviewing and updating, administering or defending your group health or other employee benefit, human resources, insurance, health care matters or related documents or practices to respond to emerging health plan regulations, monitoring or commenting on these rules, defending your health plan or its administration, or other health or employee benefit, human resources or risk management concerns, please contact the author of this update, Cynthia Marcotte Stamer.
A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 24 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters.
A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals. A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials on regulatory, investigatory or enforcement concerns.
Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations. She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications. You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.
About Solutions Law Press, Inc.™
Solutions Law Press, Inc.™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested in exploring other Solutions Law Press, Inc. ™ tools, products, training and other resources here.
Other Helpful Resources & Other Information
If you found these updates of interest, you also be interested in one or more of the following other recent articles published in this electronic Solutions Law publications available for review here including:
- Sequester Will Cut ACA Small Businesses Health Care Tax Credits
- Premier Insurance Services Pays $120,000 In Back Wages, Damages, Penalties Because Commission-Only Comp Violated Minimum Wage, Overtime Laws
- OSHA Citation Of Michigan VA Reminder To Manage Workplace Safety
- Labor Department Targeting Businesses Violating Overtime, Other Wage & Hour Laws
- Wal-Mart Settlement Shows ADA Risks When Considering Employee Return To Work Accommodation Requests & Inquiries
- HHS Releases Final Rule on Health Insurance Market, Rate Review, Pre-Existing Conditions & Other ACA Market Reform Rules
- FTC, HIPAA Rules Require Health Plans & Employers Strengthen Data Security on Mobile Devices and Applications
- 3/13 JCEB Teleconference Explores Foreign Transferees: Outbound, Inbound, Equity And Treaty Issues
- Stamer Talks on “What the Wind Blew In: Coping with Health Care Reform: 2013 and Beyond” May 2 At 24th Annual RPTE Spring Symposia In Washington, D.C.
- IRS Will Begin Accepting Returns Claiming Education Credits By Mid-February
- IRS Shares Procedures Employers Use To Claim Increased Monthly Transit Benefit Exclusion Allowed By Administrative Taxpayer Relief Act
- Employers ACA Health Reforms Prohibit Using HRAs To Pay Individual Medical Policy Premiums & Impact Other HRA Arrangements
- ADA May Require Food Allergy Accommodation By Employers, Schools & Businesses
- Employer Deadline To Give ACA Notice of Exchange Coverage Options Delayed
- Texas Champion Bank Settlement of Charges of Illegal Lending Discrimination Reminder To Business To Tighten Business Practices
- Food Allergies May Be Disabilities Requiring Accommodation Under The ADA
- 2013 Tax Code Inflation Adjustments Announced
- Drop In Company Stock Value Held By Benefit Plans Puts Plans, Company, Management & Fiduciaries At Risk
- OCR Publishes Long-Anticipated Omnibus Restatement of HIPAA Privacy, Security, Breach Notification & Enforcement Rules
- OCR Gives HIPAA Guidance On Safety Disclosures
- IRS Offers New Simplified Option For Businesses Claiming Home Office Deductions For Home-Based Business Owners & Workers
- IRS Announces Cost of Living & American Taxpayer Relief Act Income Tax Adjustments
- Tax-Related ID Theft Growing Problem For IRS, Taxpayers
- Tax Saver’s Credit Helps Low & Moderate Income Workers Save For Retirement; Possible Tool To Help Boost Their Participation In Employer Plans
- Self-Insured Health Plan Sponsors, Health Insurers Brace To Pay New ACA-Imposed Fees
- 1st OCR Small HIPAA Breach Settlement Shows Plans, Other Covered Entities At Risk From Small Breach Reports Too
- Labor Department Targeting Businesses Violating Overtime, Other Wage & Hour Laws
- Company President, Officer Can’t Use Bankruptcy To Avoid Liability For Using Plan Money For Company Operations
- Peter Madoff 10 Sentence For Defrauding ERISA Plans Reminder Manage Plan Investment Responsibilities
- $1.25M NLRB Backpay Order Highlights Risks of Mismanaging Union Risks In Health Care & Others M&A Deals
- As EEOC Steps Up ADA Accommodation Enforcement, New DOD Apple App, Other Resources Released
- $1.5 M HIPAA Security Breach Resolution Agreement Shows Looming HIPAA Risks
- ARRA, Other Government Contractors Face Growing Enforcement & Audit Risks
- Disability Exposures Big US Business Risk; New DOD App Helps ID Resources
- Obama Administration Continues War On Management Despite NLRB’s Temporary Setback In Suit Against Arizona Secret Ballot Law
- Companies, Officers, Directors, Fiduciaries & Vendors Urged To Confirm ERISA Credentials & Bonding For Internal Staff, Plan Fiduciaries, Vendors Dealing With Benefits
- Labor Risks Rising For Employers Despite NLRB Loss Of Arizona Secret Ballot Challenge
- USI Advisors Will Pay $1.27 Million To Settle Charges It Violated ERISA Fee Disclosure Requirements
- Wal-Mart Settlement Shows ADA Risks When Considering Employee Return To Work Accommodation Requests & Inquiries
- Employer Pays $475,000 To Settle ADA Discrimination Lawsuit Challenging Medical Fitness Testing For EMTs, Firefighters & Other Public Safety Worker’s
- Employers & Plan Fiduciaries Reminded To Confirm Credentials & Bonding For Internal Staff, Plan Fiduciaries & Vendors Dealing With Benefits
- EBSA Updates Guidance On Fee Disclosure Requirements For 401(k) Plan Brokerage Window Arrangements
- Federal Mandate That Employer Health Plans Must Cover 100% Of Contraceptive, Other Women’s Health Services With No Cost Sharing Now Effective
- Use NIH & Other Free Government Resources To Help Round Out Wellness Programs
If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail by creating or updating your profile at here.
For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS. ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.
©2013 Cynthia Marcotte Stamer, P.C. Non-Exclusive License To Republish Granted To Solutions Law Press, Inc. All Other Rights Reserved.
Reblogged this on Coalition For Responsible Health Care Policy and commented:
Should the Budget include expanded eligibility for the small employer health care tax credit?