By Anita Byer and Martin Salcedo
On January 2, the Internal Revenue Service (IRS) published proposed regulations regarding one of the Affordable Care Act’s more controversial provisions, the employer shared responsibility penalty. Starting in 2014, “large” employers could be assessed a penalty (tax) if they don’t offer satisfactory, minimum essential health coverage to their full-time employees and their dependents.
There's some confusion among self-storage owners as to how this provision will affect their business. This article examines the definition of a “large” employer as well as penalties employers might incur and how to avoid them.
What Is a ‘Large’ Employer?
An employer is considered “large” under the employer shared responsibility provision if it employs at least 50 full-time employees (30 hours per week), or
a combination of full- and part-time employees that equal at least 50 full-time employees. For example, 40 full-time employees and 20 part-time employees working 15 hours per week are equivalent to 50 full-time employees. In this case, the 20 part-time employees are counted the same as 10 full-time employees working 30 hours per week.
The number of employees in a given year will generally be used to determine whether an employer will be considered a large employer for the next year. In other words, if an employer has 50 full-time employees in 2013, it will be considered a large employer for 2014.
What Is the Penalty?
The amount of the employer shared responsibility penalty generally depends on whether the employer offers health coverage to its full-time employees. If a large employer doesn’t offer health coverage, or offers coverage to less than 95 percent of its full-time employees (and their dependents), and at least one full-time employee receives a premium tax credit to help pay for health coverage on an Affordable Insurance Exchange, then that employer may be assessed a penalty equal to the number of full-time employees (minus 30) multiplied by $2,000 per year, or $166.67 per month.
If a large employer does offer health coverage to at least 95 percent of its full-time employees (and their dependents), and one or more full-time employees receives a premium tax credit to help pay for coverage on an Exchange, then that employer may be assessed a penalty equal to the number of full-time employees receiving a premium tax credit multiplied by $3,000 per year, or $250 per month. To make sure an employer offering coverage isn’t penalized more than an employer not offering coverage, this penalty cannot be more than the number of full-time employees (minus 30) multiplied by $2,000 per year.
Click here to see an infographic that explains the employer shared responsibility penalty .