Affordable Care Act

By and |  September 27, 2013

Don’t overlook tax credits and other employer sweeteners that were created as part of the Affordable Care Act.

Lawmakers are attempting to repeal it, businesses are suing to prevent its implementation, and local governments and unions continue their efforts to be exempted from the massive, and controversial, “Affordable Care Act” (ACA) – the healthcare reforms enacted in 2010. More recently, President Barack Obama’s administration announced it is postponing for a full year, until 2015, the Act’s “Employer Mandate,” the requirement that employers with more than 50 workers provide health insurance to their employees or face stiff penalties.

Unfortunately, while everyone seems to be experiencing difficulties with the ACA, many within the aggregates mining industry appear to be overlooking tax credits and other sweeteners for employers that were created as part of the ACA and are already in effect.

Small business health tax credit

The Internal Revenue Service is encouraging small businesses to explore and, if qualified, claim a unique health insurance coverage tax credit. The credit was created for eligible small businesses that either maintain their current health insurance coverage or begin offering health insurance coverage to their employees.

Small employers (no more than 25 employees and average wages below $50,000 annually) are eligible for this federal tax credit, a direct reduction of the crushed stone, sand or gravel operation’s tax bill, for up to 35 percent of the amount spent on health insurance for their employees. The full amount of the credit is, however, available only to an employer with 10 or fewer full-time equivalent employees (FTEs) and whose employees have average annual full-time equivalent wages from the employer of less than $25,000. These wage limits will be indexed to the Consumer Price Index for years beginning in 2014.

Self-employed producers, including partners and sole proprietors, 2 percent shareholders in S corporations, and 5 percent owners are not treated as employees for purposes of the Small Employer Health Insurance Credit. In fact, a special rule prevents sole proprietors and their family members from receiving the credit.

The notice

Under the ACA, beginning on Jan. 1, 2014, individuals and employees of small businesses can access new competitive private health insurance markets called the Health Insurance Marketplace. The marketplace will offer “one-stop shopping” to find and compare private health insurance options. Open enrollment for health insurance coverage through the marketplace begins on Oct. 1, 2013.

Beginning in October, every employer subject to the Fair Labor Standards Act must provide a written notice to employees on health insurance coverage options. That means employers with one or more employees who are engaged in, or produce goods for, interstate commerce. For many, a test of not less than $500,000 in annual dollar volume of business will also apply.

The notice must be provided to each employee, regardless of plan enrollment status, or of part-time or full-time status. The notice must be provided in writing in a manner calculated to be understood by the average employee.

Employer responsibilities

Before the passage of the ACA, there was no federal requirement that employers offer health insurance coverage to employees or to their families. Today, new “Pay or Play” provisions in the ACA require employers with 50 or more full-time equivalent employees to offer qualified medical benefit plans to employees who work an average of 30 hours per week. But those rules will not be enforced until 2015.

The federal government estimates that it will pick up $130 billion in Obamacare penalties over the next decade from businesses that either don’t provide employees health insurance or what the government considers to be “inadequate” health insurance. Fortunately, with the postponed “Employer Mandate,” aggregates businesses will have more time to plan.

That planning should consider the four strategies to reduce this upcoming burden: (1) the mandate does not apply to operations with fewer than 50 workers, (2) the mandate doesn’t apply to employees who work fewer than 30 hours, (3) the employer doesn’t have to offer or subsidize family coverage; and (4) rather than provide health insurance, an employer can pay a $2,000 per (full-time) worker fine.

Beware however despite a reported huge shift to part-time employment in January 2013, the law contains a 12-month “look back.” That is, in deciding whether a worker is full-time or part-time on Jan. 1, 2014 when the look-back provision kicks in, the government will look at the average weekly hours worked in the previous year.

Plus, the IRS has already signaled that it will count “full-time equivalents,” when calculating the number of workers. In addition to full-time employees, large employers must count full-time equivalent employees determined by dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 120.

Skinny insurance coverage

A number of employers are avoiding the ACA by offering so-called “skinny” insurance plans that provide employees with minimum coverage. Minimum coverage such as preventive care but little else, qualifies as acceptable under the new healthcare law, making an easy sell for insurance brokers.

Employers can avoid a $2,000-per-worker penalty by providing such policies, even though the plans often don’t cover basics such as surgery, X-rays or prenatal care, let alone hospitalization. For some crushed stone, sand and gravel operations, low-benefit plans costing as little as $40 to $100 per employee per month are an attractive alternative even though they could still face penalties.

Health insurance exchanges

Starting on Jan. 1, 2014, ACA requires nearly all Americans to have health insurance through an employer, a government program or by buying it directly. One option is state-based Health Insurance Exchanges designed to make health insurance affordable and accessible for small businesses and the self-employed.

While 33 states have opted out of creating Health Insurance Marketplaces, open enrollment for health insurance coverage through existing exchanges begins Oct. 1, 2013 for individuals and employees of small businesses. Actual access to the marketplaces begins Jan. 1, 2014 when tax credits will start flowing to millions of people, helping them pay the premiums.

Under the original ACA, businesses in those non-participating states should have been free of the employer mandate. However, last spring, without authorization from Congress, the IRS expanded those subsidies to cover states that refused to set up exchanges. Not too surprisingly, lawsuits ensued arguing the IRS has no legal authority to rewrite an “essential part of the law.”

‘Free choice’ vouchers

After 2013, employers offering minimum essential coverage through an eligible employer-sponsored plan and paying a portion of that coverage will have to provide qualified employees that choose not to participate with a voucher that can be applied to the purchase of a health plan through an Insurance Exchange. The value of the voucher would be equal to the dollar value of the employer contribution to the employer-offered health plan.

Those who continue to go without coverage will have to pay a penalty to the IRS, except in cases of financial hardship. Fines will vary by income and family size. For example, a single person making $45,000 would pay an extra $1,125 in taxes when the penalty is fully phased in, in 2016.

Additional tax on high wage earners

To help pay for making health insurance affordable for small businesses and the middle class, the law included an increase in taxes for high earners. Specifically, the hospital insurance or “HI” tax rate has been increased by 0.9 percentage points on individuals earning over $200,000 ($250,000 for married couples filing jointly).

The unearned income surtax

Beginning in 2013, a 3.8 percent surtax called an “Unearned Income Medicare Contribution,” was placed on the net investment income of anyone earning over $200,000 ($250,000 for a joint return). Net investment income includes interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). It should be noted that income “actively” earned by anyone running a small, closely held business, is exempt from the unearned income surtax. But beware, income from the reserve accounts of pass-through business entities such as S corporations is considered “investment” income.


Whether because of politics or economic realities, the Obama Administration has postponed – from 2014 to 2015 – the date it will begin enforcing the requirement that employers of more than 50 workers provide health insurance. An earlier announcement revealed that small businesses will not be able to access the Health Insurance Marketplaces until 2015, thus limiting the affordable options available. The so-called “Individual Mandate,” requiring all individuals to have health insurance remains, however.

The implementation of many of the provisions of the Affordable Care Act – the requirement for employee notices be sent in October 2013, the tax credits available to small employers for health-care related expenses that started in 2010, along with the increase in Medicare payroll taxes that began in 2013 – are already a reality. The tax on high-cost “Cadillac” policies favored by the unions and many corporate executives will not, however, go into effect until 2018. Are you and your crushed stone, sand or gravel business ready?

Take note
Starting on Jan. 1, 2014, ACA requires nearly all Americans to have health insurance through an employer, a government program or by buying it directly.

Mark E. Battersby is a freelance writer who has specialized in taxes and finance for the last 25 years.

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