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The ACA Penalty Landscape for California Companies

Watch where you step!

It's a minefield for California companies any many business still don't know where the tripwires are.

Let's lay out the new penalties and make sure your company has a safe path through to the other side.

We'll also discuss the precarious decision some companies are making that the IRS won't catch up with them.

Never assume the IRS won't get its pound of flesh!

Let's get started.


Quick overview of penalties for small businesses

Here are main penalties that affect California companies with 50+ Full time equivalents (we'll discuss shortly):

  1. Penalty for not offering affordable ACA compliant coverage to full time employees
  2. Penalty for offering MEC (minimum essential coverage) to employees that get a tax credit on the individual exchange
  3. Penalty for companies that contribute towards employee's individual plans
  4. Penalty for not providing required reporting

Before we get into each category, let's discuss which companies are affected.

Companies that have 50+ ful time equivalents are subject the penalties above.

Full time equivalent definition:

Full time time equivalent basically says that part time employee hours are added together to arrive at the equivalent of a full time for safe of ACA requirements.

Full time is 30 hours+ (generally most recent 30 day period but there are different ways to calculate)

Example of FTE:

2 employees that work 15 hours each count as 1 full time equivalent (15 x 2 = 30).

How to calculate the FTE.

The common approach is to count each full time employee (30+) as 1.
Then add all part time hours from chosen period of time and divide by 30.

What does this really mean?

It means that companies can no longer ignore health insurance requirements because they hire mainly part-time employees. They also cannot avoid penalties by moving employees to part-time.

That was the real reason for the FTE basis!

Companies with 100+ full time employees were subject to the penalties in 2016 (based on 2015 information)

Companies with 50+ FTE's are subject to the penalty at tax filing time 2017 based on 2016 employment date.

Translation...companies are accruing a penalty right now!

Keep in mind that the IRS also looks at companies with shared owners as being under the same umbrella.

You could have two LLC's and the IRS will look at the FTE's across both companies as one if they have shared owners.

Contact us at 866-486-2551 to see if your company is affected by FTE calculation and the related mandates/penalties.

Lets's go more in depth for each category:


ACA penalty for not offering affordable, ACA compliant health coverage to employees

This is the big one!

Essentially, companies with 50+ (starting in 2016) FTE's must offer ACA compliant coverage to Full time employees (30+ hours) starting Jan 1st or pay a penalty.

The penalty for not offering coverage health insurance is $2000 per eligible employee per year.

10 full time employees not offered coverage?? $20,000 penalty.

It's a big deal.

So what are your options.

There are three different paths to consider:

  1. Offer no coverage and pay the penalty
  2. Offer a MEC plan and only pay penalty if employee is getting tax credit
  3. Offer ACA compliant plan

This calculation addresses both Penalty #1 and 2. We'll explain.

An employer can offer no coverage and pay the $2000/employee/year penalty.

OR

An employee can offer a Minimum Essential Coverage plan and pay $3000/employee that gets a tax credit from the individual/family Covered California market.

Which is better?

It depends on many factors and we can run quotes both ways to see what your total exposure is.

It's crazy not to have us investigate this option since it can swing your annual tax penalty by 10's of thousands (if not more) each year.

Each company is different and one option might pencil out much better than the other.

Call us at 866-486-2551 or request your your quote (make a note that you are comparing penalty versus MEC)

So those are the two penalties and they're accruing starting Jan 1st, 2016 for all companies with 50+ FTE's.

There is another option...

Offer the basis Bronze level of coverage to employees and contribute the minimum amount (50% of employee cost or $100/monthly minimum).

In certain cases, this may even be cheaper than paying the penalties!

Again, each company's make-up is different but if your agent hasn't run the proposal (carriers direct won't), you can't afford to fly blindly when the downside is $1000's.

Our services are 100% free to you and we'll provide the full comparison at no cost.

Call 866-486-2551 or


Penalty for companies that contribute towards employee's individual health plans

This is probably the biggest bombshell of the whole change.

There are 1000's of California companies that are doing this.

Roughly 20-30% of California companies are doing this and have no idea what kind of risk they are running.

Any size company is affected by this penalty...down to 1 employee!

Here's the outline:

Companies that pay towards employee's individual plans are subject to a $100/day/employee penalty.

Up to $36,500 per employee/per year!

That's quite a statement the IRS is making.

Many companies were coached to use specific IRS vehicles to "couch" the payment towards these plans in the hopes of making them more legit.

The IRS spoke up in July 2015...read their unambiguous statement here.

As a company, you do not want to:

  1. pay towards an employee's individual plan
  2. say that salary or pay is to be used for individual plan
  3. say that higher salary is in lieu of cost of individual plan

Again, it happens all the time...we hear from the employees..."My employer is giving $300 to get my own plan"

Red FLAG!!

$100/day/employee

No amount of savings can offset this potential penalty.

What can the employer do?

A California company can offer qualified Group health insurance (there may be tax credits to bring down the cost!)

OR

A company simply states that they do not offer health benefits.

No gray area. No wink wink...here's extra salary to get your own plan.

Call us at 866-486-2551 or request your group quote to avoid the penalty.


Reporting penalties for California businesses

We've written an entire article on the new requirements thrust upon companies in terms of health care reporting.

You've probably notices the new forms with exciting names like 1094C and 6055.

Tucked away in those requirements are penalties for not doing so.

The employee statement penalty

A company must now distribute the annual IRS return or provide individual statements to all full-time employees or be subject to a penalty of $250 per return, with a maximum penalty of $3 million.

Translation....don't overlook the reporting.

Deadlines:

  1. 6055 (Form 1095B) - 3/31/2016
  2. 6055 (Form 1094B) - 5/31/2016
  3. 6056 (Form 1095C) - 3/31/2016
  4. 6056 (Form 1094C) - 5/31/2016

Of course, with all the IRS requirements, there are penalties for not filing on time and correctly.

Best to get guidance on this new world.

We can help you and our new online HR system can automatically generate the correct reports.

It's best to automate all these new requirements...

unless you just love IRS forms!

The online HR system is free to all our clients. Just our way of saying Thank you and we appreciate being your agent.

Our services are free to you. Call 866-486-2551 or request quote to see how we can help solve the reporting nightmare.


Your course of action to minimize penalty exposure:

  1. Request a comprehensive comparison of Full Penalty, MEC only Penalty, or ACA compliant plan.
  2. Get your reporting ducks in a row and automate, automate, automate.

We can help with either.
Call us at 866-486-2551 or request your Company Health Quote.


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