Dealer Insights - Jan-Feb 2015 - The Affordable Care Act - What You Should Know Entering 2015
It’s been nearly five years since the Affordable Care Act (ACA) was passed by Congress and signed by the president. Since then, a number of changes have been made to the law.
This makes the start of 2015 a good time to review the status of the ACA. Following is a review of two of the act’s most important provisions — one of which will likely pertain to your dealership, depending on its size.
“Play or pay” provision
Many dealers want to know whether they’ll be subject to the act’s shared responsibility, or “play or pay,” provision. It requires large dealerships (as defined under the act) to offer affordable, “minimum essential” health care coverage to their full-time employees. Those that fail to do so will pay a penalty of $2,000 for every full-time employee after the first 30.
Under the ACA, a large dealership is one with at least 50 full-time employees, or a combination of full-time and part-time employees that’s equivalent to at least 50 full-time employees. Full-time employees generally are considered to be those who work an average of at least 30 hours per week.
Final regulations released in 2014 allow some of these large dealerships to delay having to comply with the act’s shared responsibility provision until 2016. If your dealership employed fewer than 100 full-time employees or full-time equivalent employees (FTEs) in 2014, you may qualify for this so-called midsize-employer relief.
In addition, your dealership must retain the health care coverage you offered as of Feb. 9, 2014, as well as maintain — that is, not reduce — your workforce size and aggregate hours of service. You need to provide certification that your dealership meets these requirements to qualify for this relief. If you do qualify, you’ll still be subject to the ACA’s large-employer information-reporting requirements in 2015.
If your dealership doesn’t qualify for midsize-employer relief in 2015, you can still avoid the play-or-pay penalty this year by offering affordable, minimum essential health care coverage to at least 70% of your full-time employees in 2015. This will increase to 95% of full-time employees in 2016 and beyond.
Small employer tax credit
At the other end of the business size spectrum, the ACA offers a premium tax credit for some small dealerships, employing fewer than 25 FTEs, that provide health care coverage. Last year, the IRS released final regulations about the eligibility and contribution requirements dealerships must meet to qualify for this premium tax credit.
In general, this tax credit is worth up to 50% of the aggregate amount of nonelective contributions the dealership makes to its employees’ health care coverage. To qualify, the average annual wages of FTEs must be less than $50,800 in 2014 (adjusted for inflation in subsequent years).
According to the final regs, you must make a nonelective contribution on behalf of each employee who enrolls in a qualified health plan you obtained through a Small Business Health Options Program. Your contribution must be a uniform percentage of at least 50% of the cost of the qualified health plan.
Note that the size of the tax credit is phased downward if your dealership employs more than 10 FTEs and/or their average wages are higher than $25,400 in 2014 (adjusted for inflation in subsequent years). Also, the credit can be claimed for only two consecutive years.
Complex and confusing
The provisions of the ACA are complex and can be confusing. Consult with your CPA for detailed guidance on compliance.