Health Insurance

Health insurance is another important benefit that can distinguish one employer from another when it comes to attracting and retaining employees. Over the last several years, rules regarding employer-sponsored health insurance have changed, as a result of health care reform passed in 2010. Small businesses with fewer than 25 full-time equivalent employees (FTE) whose average employee salary is about $50,000 per year or less 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 Small Business Health Options Program (SHOP). The amount of the credit for a specific business is based on the number of its employees and the average wage. The smaller the business, the bigger the credit.

While employers are not required to offer health insurance plans under current law, in 2021, 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 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 9.83% of an employee’s annual income, then the company will have to pay penalties. Companies that don’t offer affordable coverage will owe $3,860 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 $2,700 per FTE employee. The employer will only pay the penalty if an FTE employee enrolls in a subsidized health insurance plan on the marketplace. In 2021, companies are allowed to deduct the first 30 FTE employees from their calculations. 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 Affordable Care Act (ACA) provisions can be complex so consult with your advisors for guidance.