While 2016 may be many months away, it’s not too soon to start planning now for your health coverage for the coming year. There’s already buzz about double-digit increases in premiums in certain locations, but this isn’t the only change coming. There are also changes in tax rules for healthcare in 2016.
Here’s what you need to know so you can start to plan now:
1. Smaller “Large” Employers Subject to the Mandate
The employer mandate, which was supposed to start in 2014, was postponed for large employers (those with 100 or more employees) to 2015. However, starting in 2016, employers with 50 to 99 employees must start to offer coverage or pay a penalty. The mandate applies to those with full-time employees and full-time equivalent (FTE) employees totaling 50 or more.
To determine whether you’re subject to the employer mandate, average the number of your employees across the months in the year (e.g., the number of workers in 2015 determine whether the mandate applies to you in 2016). Find details about how to figure these numbers from the IRS (PDF).
Note: An employer that was not in existence on any business day in the prior calendar year is considered a large employer in the current year only if both of the following conditions apply:
- The employer is reasonably expected to employ an average of at least 50 full-time employees (including FTEs) on business days during the current calendar year, and
- The employer actually employs an average of at least 50 full-time employees (including full-time equivalents) on business days during the calendar year.
You can’t duck the employer mandate by splitting business activities into separate companies so the numbers on the separate payrolls fall below the mandate level. Companies that have a common owner or are otherwise related generally are combined and treated as a single employer, and so would be combined for purposes of determining whether or not they collectively employ the requisite number for the employer mandate.
2. Employer Contributions Needed to Avoid Penalties
If you’re required to provide coverage, you can still be subject to a tax penalty. This results if the coverage offered is “unaffordable” to employees. Coverage is deemed to be unaffordable if an employee is required to pay more than a set percentage of his or her income. For 2016, the percentage is 9.66 percent of W-2 wages.
The tax rules are complex and growing more so each year. Work with a knowledgeable tax advisor so you get things right.