Employers that already offer healthcare coverage to their employees might assume the tax won’t apply to them. However, the complexity of the rules could cause some to be subject to the tax, even if they offer offer health insurance to employees.
Irvine, CA (PRWEB) June 14, 2013
Get ready for the IRS to play a major role in health care. According to Patrick Temple-West and Kim Dixon in a June 7 Reuters report, when the Affordable Care Act takes full effect in 2014, the IRS will enforce most of the laws involved in the reform. Their jurisdiction will include collecting taxes, levying penalties, and deciding who gets included in the health-care mandate.
According to Wertz & Co., an Orange County accounting firm, one of the biggest changes for employers will be the provision that requires them to pay an excise tax if they don’t offer health insurance to employees. To avoid paying this tax, employers will need to understand all the ramifications of this new “play or pay” rule.
“Employers that already offer healthcare coverage to their employees might assume the tax won’t apply to them,” said Russell Wertz, CEO of Wertz & Co. “However, the complexity of the rules could cause some to be subject to the tax, even if they offer health insurance to employees. To avoid this outcome, employers need to get familiar with the rules, review their health insurance policies, and determine the full impact of the regulation on their businesses.”
Under the “play or pay” rule, employers that have 50 or more full-time employees and do not offer health care coverage will be required to pay an excise tax of $2,000 per year, per full-time employee. One key to avoiding the tax is understanding how the IRS defines full-time employee. According to the law, any worker that averages 30 or more hours per week for any month is considered full-time employee. However, there are a number of guidelines to consider when defining full-time employees, and employers need to be well-versed in all aspects of this law.
The regulations also require employers to offer coverage to 95% or more of full-time employees. Employers that slip below this threshold will be assessed the full tax even if they offer coverage to a majority of full-time employees.
The tax is assessed on a monthly basis, so it is possible for employers to avoid the tax in some months but not others. The IRS will calculate and assess the tax without self-reporting by employers. As a result, employers will not be able to ignore the rule and its resulting tax.
There are some exemptions to the tax. Factors affecting these exemptions include an employee’s decision to purchase or not purchase insurance through a state or federal exchange, and whether an employee’s overall household income qualifies them for a credit or subsidy. Because these factors are beyond their control, employers should not count on qualifying for an exemption. To avoid the excise tax, employers need to understand the IRS’ rules, especially in regards to what constitutes a full-time employee.
Employers may choose to simply eliminate health coverage and pay the excise tax. However, they should carefully consider the financial and workforce ramifications before embarking on such an approach. For example, tax payments may not be taken as a deduction on the company’s income tax return.
“Some employers might downplay their tax risks because the basic rules seem simple,” added Wertz. “However, the risks associated with falling into the 95% threshold trap are too great to take chances. We strongly recommend that employers study the rules and implement the proper administrative procedures to stay in compliance with the law. Otherwise, they can end up paying significant penalties they didn’t think would apply to their company.”
About Wertz & Company
Wertz & Company is an Orange County accounting firm that specializes in working with entrepreneurs and business owners along their journey to success. The firm offers accounting, financial planning, estate and wealth management planning, tax preparation, and other management consulting services in a personal, proactive, responsive manner. With a strong commitment to the local community, Wertz & Company contributes to several different charitable endeavors. For more information, visit http://www.wertzco.com.