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How Will the Affordable Care Act Affect Your Taxes?


Hana Dickman

Whether you are self-employed or you have a relatively small workforce, chances are you’re facing new tax requirements due to the Affordable Care Act (ACA). Your tax reporting burden will vary depending on the size of your business and the number of full-time equivalent employees. So how will the Affordable Care Act affect your taxes if you’re a small business owner? Let’s break it down…

For the Self-Employed

Self-employed workers simply need to prove they have their own insurance coverage. Keep in mind, tax credits are available only if you are utilizing the Marketplace (federal or state) to purchase insurance. While there is no requirement that you purchase your insurance on an exchange, you could be forfeiting tax breaks if you purchase on your own.

Tax filing will mean proving you have insurance. If you’re getting your insurance on the Marketplace, you’ll be issued a Form 1095A. Otherwise, you can simply take your health care deduction, which is proof of coverage in itself . Make sure you have saved copies of your insurance bills in case they’re requested at a later date.

For Employers With Fewer Than 25 Employees

The good news for small businesses that employ fewer than 25 people is that you can purchase insurance via the SHOP (Small Business Health Options Program) Marketplace, and you can get substantial tax credits for doing so. In fact, the fewer employees you have, the more benefits you can get through these plans. If your employees are covered through a SHOP program, they will be sent a Form 1095A, and their W2s — which you have issued — will show the amount of coverage. When filing your business taxes, you’ll be able to easily claim your credit.

For Employers With 25-49 Employees

Employers who have 50 or more full-time equivalent employees (FTE) must offer insurance to their employees. However, the SHOP plan will also work for business owners who have fewer than 50 and at least 25 employees. When 95% of your employees accept coverage, you will likely be eligible for tax credits. It’s important to remember that your tax credit will be based on the amount you’re contributing as an employer to the overall cost of the plan.

Benefits of SHOP

The benefits of the plans offered through SHOP are numerous, including the tax credits available to employers. Your employees will receive all of the necessary documentation to show they have coverage without you having to take any additional steps. Additionally, you’ll receive a statement that shows your contribution and any credits you may be entitled to.

There are other significant benefits to the SHOP that have nothing to do with your taxes but nonetheless are important to keep in mind:

  • Easy enrollment – Once you pick the plan or plans that your business will offer, your employees will automatically be able to sign themselves up based on the criteria you set.
  • Payment subsidy – You will be able to set the maximum amount you’re paying towards the premiums immediately, and you can change that as needed
  • Plan levels – As the employer, you’ll have full control over the level of plans you offer to employees.

The most significant tax changes will apply to larger businesses — those who employ 50 or more people. In this case, employers are required to offer a specific level of coverage (minimum standards) and if they fail to do so, they will be responsible for paying a shared responsibility fee to the IRS. It’s also important to properly calculate the number of full time employees you have, since even those with more than 50 employees may still not reach the threshold of “full-time equivalent.”

For most people, the new requirements for health insurance will not significantly impact your taxes unless you are not maintaining health insurance. In cases where you do not have the minimum coverage, you will be expected to pay a fine unless you fall below the income levels that would qualify you for an exemption.