Health insurance is an important benefit that can distinguish one employer from another when it comes to attracting and retaining employees. Rules regarding employer-sponsored health insurance have changed, as a result of health care reform passed in 2010. Small businesses with fewer than 25 employees that pay at least 50% of the health care premiums for their employees qualify for a tax credit of up to 50% of their premiums (up to 35% for nonprofits) if insurance is purchased through an exchange. The amount of the credit for a specific business is based on the number of its employees and the average wage.
While employers are not required to offer health insurance plans under current law, in 2018, a business with 50 or more full-time employees (defined as working 30 or more hours per week) will be required to provide health insurance to at least 95% of their fulltime equivalent employees (FTE) and dependents to age 26 or pay a penalty. The business must provide health insurance plans that meet "minimum value" standards, or ones that cover at least 60% of the total cost of medical services. If the employer's plan fails to meet the minimum value requirement or costs more than 9.86% of an employee's annual income, then the company will have to pay penalties. Companies that don't offer affordable coverage will owe $3,750 for every FTE employee who gains coverage through the marketplace. If an employer fails to offer any type of health insurance, then they will have to pay $2,500 per FTE employee. The employer will only pay the penalty if an FTE employee enrolls in a subsidized health insurance plan on the marketplace. Companies are allowed to deduct the first 30 FTE employees from their calculations beginning in 2018. Employers that offer health care coverage may in some cases also be required to provide "free choice vouchers" to employees. Employers and other entities providing minimum health coverage are required to report the value of health benefits to the IRS, and this value appears on employee W-2 forms. Compliance with the ACA provisions can be complex, so consult with your advisors for guidance.