Affordable Care Act – Effect on Employers

The following are some of the key provisions impacting employers:

Penalty taxes.—A penalty tax is imposed on employers with 50 or more full-time employees for failure to offer full-time employees an opportunity to enroll in minimum essential coverage under an employer-sponsored health plan. A penalty tax is also imposed if employees qualify for a premium tax credit or cost-sharing reductions or if employees are subject to extended waiting periods.

Medicare tax withholding.—Employers are required to withhold additional Medicare tax on high-income taxpayers.

Excise tax on “Cadillac” plans.—Employers are required to calculate the excise tax applicable to high coverage “Cadillac” health plans and report amounts to the IRS and each coverage provider. A penalty is provided for calculation errors.

Expanded W-2 reporting.—Employers are required to include on Form W-2 the total cost of employer-sponsored health insurance coverage.

Minimum coverage report.—Large employers are required to report to the IRS and to the individuals involved whether they offer minimum essential coverage. A large employer is defined as an employer with an average of at least 50 full-time employees. Penalties are provided for failure to correctly report.

Limits on FSAs.—Health flexible spending arrangements (FSAs) in tax years after December 31, 2012 must limit contributions through salary reductions to $2,500, adjusted for inflation for tax years after December 31, 2013.

Children under age 27 dependents.—Children under age 27 are considered dependents for purposes of the general exclusion for reimbursed employee medical expenses and medical expenses of retirees under qualified pension or annuity plans.

Business deduction to consider retiree drug subsidy.—Employers, as plan sponsors, may no longer disregard the value of any qualified retiree prescription drug plan subsidy in calculating the employer’s business deduction for retiree prescription drug costs. For many employers, this may significantly increase the expense of self-insuring retiree prescription drug costs