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Thursday, May 23, 2013

Nonprofits are not “exempt” from the ObamaCare employer mandate penalties…

Posted by Armanino Nonprofit Team

That’s correct, if your organization has not evaluated its potential costs related to the employer health care mandate (effective January 1, 2014), do not delay any longer. Planning in this area is critical so that informed decisions with respect to health care coverage can be made. Armanino’s team of health care consultants can help guide you through the process. This article discusses highlights of the employer mandate.

Contact me if you’d like to attend our ACA presentation in July for nonproft organizations or tune in to our 2013 Nonprofit Annual Tax Update webinar in June.

History
On March 23, 2010, sweeping reform of the nation’s health care system, known as the Patient Protection and Affordable Care Act (“ACA”), was signed into law. As you probably recall, in June 2012 the Supreme Court upheld the “individual mandate” provision of this law which compels every American to obtain health insurance or pay a fine. In addition, the ACA requires certain employers to offer and contribute to their workers’ health insurance or pay a penalty.
Under the new law, effective for months beginning after Dec. 31, 2013, a “large employer” (includes nonprofit organizations) that does not offer coverage for all its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%, is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.

We’d like to point out here that if your nonprofit organization is not a “large employer” but has fewer than 25 employees, pays average annual wages below $50,000, and provides health insurance, it may be eligible for the Small Business Health Care Tax Credit of up to 25% (35% for other businesses). This credit has been available since 2010 and is scheduled to increase up to 35% (50% for other businesses) in 2014. Nonprofits claim the credit by filing a federal Form 990-T. If the credit was not claimed, an amended or late return can be filed.

Who is Subject to the Employer Mandate?
Only an “applicable large employer,” defined as someone who employed an average of at least 50 full-time employees (using a full-time equivalent calculation) during the preceding calendar year, is subject to the requirement to offer coverage. Most small businesses, since they have fewer than 50 employees, are thus exempt from the employer requirement. In counting the number of employees for purposes of determining whether an employer is an applicable large employer, a full-time employee (meaning, for any month, an employee working an average of at least 30 hours or more each week) is counted as one employee and all other employees are counted on a pro-rated basis.

However, even an employer with 50 or more employees isn’t subject to the penalty for not offering coverage if the employer doesn’t have any full-time employees who are certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee. In other words, if an employer doesn’t have any full-time employees who have a lower income that might qualify him or her to receive a subsidy when purchasing a health plan in the proposed health insurance exchange, the employer will not pay a “pay or play” penalty.

Let’s look at more details…

Penalties on Employers not Offering Coverage
An applicable large employer who fails to offer its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan for any month is subject to a penalty if at least one of its full-time employees is certified to the employer as having enrolled in health insurance coverage purchased through a state exchange with respect to which a premium tax credit or cost-sharing reduction is allowed or paid to the employee.

The penalty for any month is an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) multiplied by one-twelfth of $2,000.

For example, if an employer fails to offer minimum essential coverage and has 60 full-time employees, ten of whom receive a tax credit for the year for enrolling in a state exchange-offered plan, the employer will owe $2,000 for each employee over the 30-employee threshold, for a total penalty of $60,000 ($2,000 multiplied by 30 (60 minus 30)). This penalty is assessed on a monthly basis.

Penalties on Employers Offering Coverage
An applicable large employer who offers coverage but has at least one full-time employee receiving a premium tax credit or cost-sharing reduction is subject to a penalty. The penalty is an excise tax that is imposed for each employee who receives a premium tax credit or cost-sharing reduction for health insurance purchased through a state exchange.

For each full-time employee receiving a premium tax credit or cost-sharing subsidy through a state exchange for any month, the employer is required to pay an amount equal to one-twelfth of $3,000. The penalty for each employer for any month is capped at an amount equal to the number of full-time employees during the month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) in excess of 30, multiplied by one-twelfth of $2,000.

For example, if an employer offers health coverage and has 60 full-time employees, 15 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan, the employer will owe a penalty of $3,000 for each employee receiving a tax credit, for a total penalty of $45,000.

The maximum penalty for this employer is capped at the amount of the penalty that it would have been assessed for a failure to provide coverage, or $60,000 ($2,000 multiplied by 30 (60 minus 30)). Since the calculated penalty of $45,000 is less than the maximum amount, the employer pays the $45,000 calculated penalty. This penalty is assessed on a monthly basis.

Questions to Ask Yourself Now

  • Are you a large employer with 50 or more full-time equivalent employees? If so, continue.
  • Are you offering coverage to at least 95% of your full-time employees (and dependents)?
  • If you are offering coverage, is it “affordable” and does it pay out at least 60% of allowed costs?
  • If your coverage fails the above criteria, what are the potential penalties?
  • How do projected penalties compare to the additional cost of coverage meeting the criteria above?

If you are a “large employer,” you will need to evaluate the impact of the ACA’s employer mandate now to avoid unexpected penalties. If you would like more details about these provisions or any other aspect of the new law, or would like us to review the complexities of the mandate with your HR Department, please contact your ArmaninoLLP nonprofit tax professional or Susan Miller at 925 790 2808 or Susan.Miller@amllp.com.

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