COMPLICATED??? You betcha!!!!! This all requires a combined effort with your tax person and your insurance person. (eas)
******************************************************************************************************************************************
The IRS released final regulations on the tax credit available under the Affordable Care Act to small employers that offer health insurance coverage to their employees. The final rules under tax code Section 45R extend the tax credit to employers with no more than 25 full-time equivalent employees (FTEs) whose annual average wages are a maximum of $50,000, adjusted for inflation after 2013, the IRS said.
Federal, state, local, or Indian tribal government entities aren’t eligible for the tax credit under Section 45R, unless they are organizations described in Section 501(a) and otherwise meet the eligible small-employer requirements, the IRS said.
Under the rules, employers also must have a qualifying arrangement in effect that requires them to pay at least 50 percent of the premium cost of a qualified health plan offered to their employees through a Small Business Health Options Program (SHOP) exchange.
The final rules closely track the proposed rules issued in August 2013.
The final rules provide that employees, as determined under the common law standard, who perform services for the employer during the taxable year generally are taken into account in determining FTEs and average annual wages. The rules state that FTEs are calculated by computing the total hours of service for the taxable year, using one of three allowable methods, and dividing by 2,080. Leased employees are also counted in computing a service recipient’s FTE and average annual wages, the rules said. The rules also follow the proposed rules in treating all employers that are treated as a single employer under Section 414(b), (c), (m) or (o) as a single employer for the purposes of the Section 45R credit.
Under tax code Section 45R and the final regulations, for taxable years beginning in or after 2014, the maximum credit for an eligible small employer is 50 percent of the eligible employer’s premium payments made on behalf of its employees under a qualifying arrangement for plans offered through a SHOP exchange, the IRS said. For a tax-exempt eligible small employer, the maximum credit is 35 percent.
An employer’s premium payments are limited by the average premium in the small group market in the rating area in which the employee enrolls for coverage through a SHOP exchange, the IRS said. The credit also will be reduced by the excess of the credit calculated using the employer’s premium payments over the credit calculated using the average premium, the IRS said.
The credit phases out for eligible small employers if the number of their FTEs exceeds 10, or if the average annual wages for FTEs exceeds $25,000, as adjusted for inflation for taxable years beginning after 2013. The final regulations provide that employees who work on a seasonal basis for 120 or fewer days during the taxable year aren’t considered employees when determining FTEs and average annual wages, but premiums paid on behalf of seasonal workers may be counted in determining the amount of the credit. Only workers who perform labor or services on a seasonal basis, including retail workers employed exclusively during holiday seasons, meet the definition of a seasonal worker for purposes of the credit, the IRS said. The final regulations also state that employers may apply a reasonable, good-faith interpretation of the term “seasonal worker” and a reasonable good-faith interpretation of 29 C.F.R. Section 500.20(s)(1), which defines the conditions under which labor is performed on a seasonal basis. The proposed and final regulations provide that bonuses are included to the extent they are treated as wages for FICA purposes.
For purposes of the transition rule provided in the final regulations for an eligible small employer with a group health plan year that begins on a date in 2014 other than the first day of the employer’s taxable year, an employer with a principal business address in one of the counties listed in Notice 2014-6 isn’t required to begin offering coverage through a SHOP exchange as of the first day of its plan year that begins in 2014 in order to be treated as offering coverage through a SHOP exchange for its entire 2014 year, the IRS said.
Instead, such employers are required to continue offering health insurance coverage for the plan year that begins in 2014 that would have qualified for a tax credit under Section 45R under the rules applicable before 2014, the IRS said.
The rules went into effect on June 30
