Dealer Insights - March/April 2013 - The Health Care Act: Getting Ready to Comply
It appears that the Patient Protection and Affordable Care Act is a done deal, at least for now. Most of its provisions have been upheld by the U.S. Supreme Court. And, with the postelection balance of power in Washington remaining roughly the same, repeal anytime soon is highly unlikely. So here’s a look at some things auto dealerships should do to prepare, because some requirements take effect this year or in 2014.
MEETING WITHHOLDING REQUIREMENTS
The first thing to figure out is whether the additional 0.9% Medicare tax withholding requirement that goes into effect this year will apply to any of your employees. The requirement doesn’t kick in until the point during the calendar year at which an employee’s pay exceeds $200,000.
The $200,000 amount doesn’t include the employee’s income from any other sources. Nor does it take into account his or her tax filing status. One consequence: You may be required to withhold the additional Medicare tax from wages paid to employees who aren’t ultimately liable for the tax — for example, because their wages, together with those of their spouse, don’t exceed the $250,000 threshold for joint filers.
An employee (including yourself) can’t ask your dealership to stop withholding the tax. Instead, if an employee ultimately doesn’t owe the tax, he or she can claim a credit for the withheld tax on his or her income tax return for the year.
ADDING UP YOUR FTES
Does the act’s requirement to provide adequate health insurance (coverage that satisfies minimum essential benefit requirements and qualifies as affordable) beginning in 2014 or pay a penalty apply to your dealership? Well, that depends. If you had 50 or more full-time-equivalent employees (FTEs) in the previous calendar year, you’ll be considered a “large” employer — and the answer may be “yes.” Here’s how to compute your FTE total:
- Count your full-time workers — employees who work 30 hours or more per week, excluding seasonal employees who work fewer than 120 days per year.
- Convert your part-time workers to FTEs by dividing their total monthly hours by 120.
- Add the two figures above.
Let’s say that 45 full-time employees work at your dealership, as well as 10 part-time employees who each work 80 hours per month. Total monthly hours for part-time employees are 800 (10 × 80). Dividing 800 by 120 equals 6.7 FTEs, for a total of 51.7 FTEs. You would be a large employer. But there is an exception: If your number of FTEs exceeds 50 on no more than 120 days during the preceding year, your dealership won’t be considered a large employer.
If your dealership is near that 50 FTE threshold, you may have some options that would keep you under it. For example, you might be able to shift work to a seasonal worker — one who works fewer than 120 days per year — or an independent contractor.
UNDERSTANDING YOUR CHOICES
If you’re a large employer, you’ll owe a penalty only if you have an employee receiving a premium tax credit. Premium tax credits are available to employees who meet certain income requirements and are without access to adequate employer-provided health insurance.
Basically, you have two choices if your dealership is a large employer and at least one employee receives the credit: You can provide employees with adequate health insurance in 2014, or you can pay the applicable penalty.
The penalty for not providing insurance is $2,000 per full-time employee (not per FTE) excluding the first 30 employees. So, if your dealership employs 45 full-time employees, the penalty would be $2,000 × 15 (45 - 30), or $30,000. The penalty for providing inadequate coverage is $3,000 for each employee who receives a premium credit or, if less, $2,000 per full-time employee.
If you already offer health insurance, the new requirements may have little effect on your dealership. But if you don’t or your coverage is inadequate and you’re a large employer, you may have some substantial new costs for initiating or improving health coverage — or face tough penalties for not doing so. Discuss your particular situation with your CPA and be prepared for the changes poised to take place.
Dealer Insights - March/April 2013 Issue