Small Business Health Care Tax Credit Help From the IRS

The Internal Revenue Service released final guidance for small employers eligible to claim the new small business health care tax credit for the 2010 tax year. The release includes a one-page form and instructions small employers will use to claim the credit for the 2010 tax year.

What is the small business health care tax credit?
Included in the Affordable Care Act enacted in March, the small business health care tax credit is designed to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

Small businesses can claim the credit for 2010 through 2013 and for any two years after that.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations.
Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

The maximum credit goes to smaller employers – those with 10 or fewer full-time equivalent (FTE) employees – paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.

What information does the new guidance include?
The new guidance addresses small business questions about which firms qualify for the credit by clarifying that a broad range of employers meet the eligibility requirements, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multiemployer health and welfare plans, and employers that subsidize their employees’ health care costs through a broad range of contribution arrangements.

How does a company claim the tax credit?

Eligible small businesses will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on their income tax return.
Tax-exempt organizations will first use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. Though primarily filed by those organizations liable for the tax on unrelated business income, Form 990-T will also be used by any eligible tax-exempt organization to claim the credit, regardless of whether they are subject to this tax.

Additional information

For more information about the credit, including a step-by-step guide to claiming the credit and answers to frequently asked questions, please visit the Affordable Care Act page on IRS.gov.
IRS Notice 2010-82
Form 8941 and Instructions to Form 8941
Form 990-T (available in draft form)

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Health Care Reform Checklist for 2011

The Patient Protection and Affordable Care Act (PPACA) contains comprehensive health insurance reforms that require compliance by employer-sponsored group health plans. Many of these reforms apply to plan years beginning on or after September 23, 2010. The following general checklist is designed to help employers review their plan’s compliance with the major health care reform requirements implemented in 2010, as well as prepare for changes ahead in 2011.

Please note that this list is for general reference purposes only and is not all-inclusive. This list is also subject to change based on new government requirements or directives. Additionally, your group plan may be exempt from certain requirements described below. If you have any questions regarding your
obligations with respect to health care reform, you should consult with a knowledgeable employment law attorney and your carrier for specific guidance.

1. Determine Grandfathered or Non-Grandfathered Status of Plan

Note: A grandfathered plan is one that was in effect on March 23, 2010. If a plan loses its grandfathered
status, it may no longer be exempt from certain PPACA requirements.

Evaluate whether any changes made to the group health plan with respect to benefits,
costs, or other changes result in
loss of grandfathered status.
To maintain grandfathered status, a plan must include a statement, whenever a summary of benefits
under the plan is provided to participants and beneficiaries, that the plan believes it is a grandfathered
health plan according to the Affordable Care Act and must provide contact information for questions and
complaints (model notice available here).

2. Review Plan Documents for Required Changes

Note: Unless otherwise noted, plan documents should be amended to reflect changes effective as of the
first day of the first plan year beginning on or after September 23, 2010. Please consult with your
carrier for additional details or if you have questions regarding these amendments.

If the plan offers dependent coverage, the coverage is available until a child reaches the age of 26.
(Prior to 2014, grandfathered plans do not have to comply with this requirement for adult children who have another offer of employer-based coverage.)
Lifetime dollar limits on “essential health benefits” have been eliminated.
Annual limits on “essential health benefits” are being phased out according to the limits set by law (no lower
than $750,000 for plans issued or renewed beginning Sept. 23, 2010). Some plans may be eligible for a
waiver from the rules concerning annual dollar limits.
Any pre-existing condition exclusions for children under age 19 have been eliminated.
Effective Jan. 1, 2011, reimbursements for over-the-counter drugs from HSAs, Archer MSAs, FSAs or HRAs qualify
only if the medication is purchased with a prescription (except insulin). An increased penalty of 20% applies for nonqualified distributions from a HSA or Archer MSA.
Except for grandfathered plans, coverage of recommended preventive services is provided with no cost-sharing requirements, such as co-payments or deductibles.
Except for grandfathered plans, patient protections related to choosing a primary care provider, access to OB/GYN care, and coverage of emergency services are included as appropriate.
Except for grandfathered plans, an effective internal and external appeals process for coverage determinations and claims is in place.

3. Implement Special Enrollment Opportunities

Note: The following special enrollment opportunities must be provided, and coverage must take effect,
not later than the first day of the first plan year beginning on or after September 23, 2010.

30-day special enrollment opportunity for individuals whose coverage ended, or who were denied coverage (or were not eligible for coverage), because the availability of dependent coverage of children ended before attainment of age 26.
30-day special enrollment opportunity for individuals whose coverage ended by reason of reaching a lifetime limit under the plan.

4. Provide Participant Notices

Note: Unless otherwise noted, the following notices should be provided to plan participants no later than the first day of the first plan year beginning on or after September 23, 2010.

Opportunity to enroll in connection with extension of dependent coverage to age 26 (model notice available here).
Lifetime limit no longer applies and opportunity to enroll (model notice available here).
Notice of patient protections, if applicable (model notice available here). Distribute whenever a participant is
provided with a summary plan description or other similar description of benefits under the plan, and no later than the
first day of the plan year starting on or after Sept. 23, 2010.
Notice of available internal and external appeals processes and the availability of any consumer assistance with respect to such processes, if applicable.
It is also prudent to provide participants notice of the new restrictions on reimbursement of costs for over-the-counter drugs in relation to HSAs, Archer MSAs, FSAs and HRAs, prior to Jan. 1, 2011.

5. Other Considerations

Review and amend Section 125 (cafeteria plan) documents as necessary to reflect any changes. If eligible, consider whether your company could benefit from establishing a simple cafeteria plan.
Determine whether your company qualifies for the small business health care tax credit.
Maintain compliance with the break time requirement for nursing mothers, if applicable.
Consider necessary changes to your payroll system in preparation for compliance with the requirement to report employer-provided health coverage on Form W-2. Reporting by employers is optional in 2011.*
Be prepared for compliance requirements to change. Stay up-to-date on the latest information regarding health care reform by visiting
HealthCare.gov.

Please note that employers in some states may be required to report the cost of employer-provided health benefit coverage for adult children on the employee’s Form W-2 in 2011 for state income tax purposes. Employers should contact their state revenue department for reporting requirements related to coverage for adult children.

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A Simple and Easy Approach to Understanding Health Care Reform

Making it easier for you. No matter who you are.

We could write hundreds of posts on Health Care Reform and never fully cover all the changes that have taken place, or soon will be taking place. We’ve already written about preventative services, the advantages of Carrier Connect with respect to the bill, and a time line of the proposed changes.

We understand that this topic can be very, very confusing. We ran across this great animation from the Kaiser Family Foundation which, through its use of interesting (and at times, humorous) video and storytelling, helps explain some of the more important and confusing areas of Health Care Reform. Want to dig deeper into the changes brought about since this bill took effect? See our list of helpful links at the bottom of this post.

Kaiser Family Foundation Video

Yes We Can (help)

We at Ascentis understand that for HR mangers it can be worrisome to keep up with all these changes, and the concerns surrounding costs and compliance. We also understand the employee perspective – they REALLY want to understand how Health Care Reform will affect their benefits and their wallet. That’s a heavy time and worry burden that today’s HR managers have to take on. Want to learn how to use our software to stay compliant? Want to see how Employee Self Service and web based Open Enrollment can make it easier on your and your employees? Our systems save you time & money in many areas. Send us an email or simply fill out this form to find out more. We’re here to help.

What the government wants YOU to understand about the new law (video)

The effect on YOUR business. What you need to know.

Health Care Reform and Electronic Interface with Insurance Carriers

By Les Goldstein, CEO, Ascentis

While there is currently a great deal of unknown concerning the recent health care legislation, we do know the following:

We will all need to be flexible as we better understand the specific impact on individuals and corporations.
The impact will occur over time as various aspects of the bill phase-in over a five year period.
Companies that can more effectively communicate and administer their health care benefit programs will have an edge in the marketplace.

The last bullet is the one that most companies can deal with now, and along the way, accrue some pretty powerful advantages. These include the following:

Employee self-service (ESS) capabilities allow employees to enroll in their benefits program through an easy-to-use, online interface. ESS can be deployed to employees through the Internet and can be accessed either from the office or at home. This ensures that employees have access to all plan information and are in a position to make their elections. ESS enhances morale by providing an easier enrollment process and, most importantly, eliminates the need to manage paper forms that tie HR personnel up with what is effectively an administrative task.
An electronic insurance carrier interface allows the information received from employee self-service to be automatically transmitted to the insurance carrier in a format that can be easily received and processed by that carrier. This eliminates the need to take information that was entered by an employee and reduce it to paper before sending it to the insurance company. The elimination of manual handling and transcription errors makes this a very cost effective and efficient process.

In our collective desire to drive down health care costs, companies can take the above proactive approaches. In fact, inaccurate processes have caused businesses to inadvertently pay for health care coverage for employees that are no longer part of the company, as well as over-age dependents. It is estimated that these costs average about 8.5% of a company’s overall premium. This represents a major potential savings and this should be explored by all companies today.

One way to prevent over-charges is to automate reconciliation of carrier bills through a service such as Ascentis Carrier Connect. In conjunction with Ascentis Employee Self-Service, Carrier Connect supports a virtually paperless – and accurate – enrollment process, saving companies thousands of dollars.

Ascentis Blog

Information to help HR and payroll managers, recruiters, and compliance officers become more effective.

Tag Archives: health care reform