For several years north state small business owners have been unable to take advantage of the Small Business Tax Credit established by the Affordable Care Act (ACA or Obamacare) for employee benefits. This has been due to the fact there was not a viable product in our marketplace.
Starting 1/1/2017 Blue Shield of CA will offer plans through the SHOP. SHOP is the small business exchange through Covered CA providing insurance options for groups with fewer than 100 employees. The credit is available for a maximum of two consecutive tax years
But before all the small business owners out there get too excited, you want to be sure to look carefully at whether your business qualifies.
Covered CA states that to be eligible for the credit you must meet the following conditions:
- You must purchase employee health insurance through Covered California for Small Business.
- You must pay at least 50% of the cost of health coverage for each of your employees.
- You must have fewer than 25 full-time equivalent employees (FTEs).
- Your employees must have an average annual wage of less than $50,000 per year (as adjusted for inflation beginning in 2014).
“Full time equivalent employees” (FTE) are not “belly buttons” but instead is the result of the calculation including all part-time and full time employees who worked the during the preceding calendar year or what are reasonably expected to work in the current year for a new employer.
This calculation totals the number of full-time employees, i.e. those working 30 or more hours per week, plus the result of the part-time/ variable hour employee calculation. It works like this:
Total the number of hours worked by each employee in the category (less than 30 hours per week but more than 120 days in the year) then divide by 30. Add this to the number working 30 or more for your total of FTE for this purpose. There is a calculator for this on the Covered CA website as well.
Many accountants are not excited about calculating this tax credit. So before you get your hopes up it might be a good idea to look at the estimator on the Covered CA website.
Once you have looked at the calculation, you then need to compare your current plan rates and benefits with those available on the SHOP. The rates tend to be a tad higher for most of the plans as far as I have seen. Once you have an idea of your tax credit, your broker can assist you in evaluating the different plans.
Even if you don’t qualify for the tax credit, there is another reason to look at the SHOP plans. Those are the only plans that allow the employer to prohibit spouses from eligibility in the plans.
This could be valuable because of the way the subsidies work on the individual exchange. This is something that comes up countless times in our practice and most individuals do not understand it. I have often warned in this column, that it is becoming more likely that individuals will be caught and required to pay back their subsidies if they violate the rule.
The rule states that if either spouse is offered “affordable coverage” from their employer, then the other spouse is ineligible for subsidies on the Exchange. “Affordable” coverage is defined as: the employee only share of cost for the lowest plan does not exceed 9.66% of the employee’s W-2 wages with their employer.
Since most small employers pay 70-90% of the employee only premium, it’s rare that the plan is unaffordable. Further, larger employers will design their contributions to make the plan “affordable” so the employer is not subject to the employer penalty.
One further note. The plans must allow children to age 26 to be eligible for coverage.
Many small employers took advantage of an early renewal in September to save about 10% against 4th quarter 2016 rates. The idea of changing now, might be a little more than they want to consider. But it is important to know that it is out there to decide if you are interested in pursuing it.