Basic health insurance and the tax penalty for individuals without coverage.
Starting in 2014, the PPACA mandates that almost all individuals must show and keep evidence of “minimum essential coverage.” This coverage includes health insurance plans provided by employers, plans purchased individually, health insurance programs sponsored by the government (like Medicare and Medicaid), and health plans held by individuals or groups that were in effect before the law was enacted.
If a person doesn’t demonstrate and maintain the minimum essential coverage by March 31, 2014, they will be subject to the individual mandate tax. This tax will be applicable from 2014 onwards and it will amount to $95 or 1 percent of their household income above the filing threshold, whichever is higher. In 2015, the individual tax will increase to $325 or 2 percent above the filing threshold. By 2016, the mandate tax will be $695 or 2.5 percent above the filing threshold. Starting from 2016, the tax amount will rise annually based on a cost-of-living adjustment.
Employer Mandate Penalties
Starting from 2015, the healthcare legislation mandates that companies with 100 or more full-time or full-time equivalent employees provide minimum essential coverage to their full-time staff or face a penalty tax. If a company of this size fails to offer minimum essential coverage to at least 70 percent of their full-time employees and any of these employees receive a subsidy on the individual exchange (with income ranging from 100 to 400 percent of the federal poverty level), the company will be fined $2,000 per full-time employee (excluding 80 full-time employees).
In the year 2016, the employer mandate will also apply to medium-sized companies that have 50-99 full-time or FTE employees. These companies, as well as large companies, will be obligated to provide minimum essential coverage to at least 95 percent of their full-time employees and their dependents. Dependents include children who are up to 26 years old, while spouses are not considered dependents.
If a company of medium or large size provides basic coverage to full-time workers and their dependents, but it is considered too expensive (individual premiums amount to more than 9.5 percent of the employee’s taxable income) or does not meet minimum standards (has a value of less than 60 percent), then the company will face a penalty. The penalty will be either $3,000 for the specific full-time employees affected or $2,000 per full-time employee (excluding the first 30 employees).
The requirement for employers to provide coverage was initially planned to start in 2014, but rules from the Treasury Department released in July 2013 initially postponed the need to report and face penalties by one year, until 2015. In February 2014, the Treasury Department further postponed and changed the requirements and penalties for midsize businesses (50-99 FTEs), granting them until 2016 to comply. However, midsize businesses are still required to report and confirm coverage with the IRS for the 2015 tax year.
Full-Time Employees
The PPACA states that a person can be considered a full-time employee if they work an average of at least 130 hours in a month (equivalent to 30 hours per week).
Big corporations have the option to determine if their existing employees are working full-time either by calculating their actual monthly hours or by reviewing a designated time period of no less than three but no more than twelve consecutive months to establish if the employee has an average of at least 130 hours of service per month (equivalent to 30 hours per week).
Big companies are required to provide basic coverage to their full-time workers and their family members for a period of 6-12 months if the employee consistently works full-time hours during a specific time frame for measurement. If a company decides not to offer minimum coverage to full-time employees and their family members, and if one or more employees receive a tax credit on the individual marketplace, the company will be penalized by the government annually.
Part-time employees
The hours worked by part-time employees will be changed into full-time equivalent (FTE) employees in order to determine if the employer is considered a large employer and subject to the employer mandate. This conversion is done by adding up all the hours worked by non-full-time employees on a monthly basis and dividing the total by 120. For instance, if there are 6 part-time employees who each work 20 hours per month, their hours would be counted as if the company has an additional FTE employee, which is calculated on a monthly basis (6 employees x 20 hours per month = 120 monthly hours/120 = 1 FTE employee).
Part-time employees will not be mandated to receive minimum essential coverage from big employers, however, the determination of whether the employer is large and subject to the employer will be based on the hours worked by part-time employees.
Seasonal Employees
Hours worked by employees who are employed seasonally will be included in an employer’s monthly total of full-time equivalent (FTE) employees. An employee is classified as seasonal if they work for 6 months or less during a year. An employer is not considered “large” and therefore not subject to the employer mandate if they have 50 FTE employees or fewer for 120 days (or 4 months) or less during a year. This particular scenario is referred to as the exception for seasonal workers.
Frequently Asked Questions
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