Untangling Health Care Reform: Part 3

05/12/2014 @ 8:29am

Now that the Affordable Care Act (ACA) individual open enrollment deadline has passed, it’s time to study the options for insuring your employees under the Small Business Health Options Program (SHOP). There’s no insurance mandate if your business employs fewer than 50 full-time employees. (About 96% of all U.S. small businesses fall into this category.)

For businesses with 100 or more employees, the mandate is delayed until 2015; it’s 2016 if you have 50 to 99 employees.          

“Right now, the ACA is like a moving target for small business owners,” says Marilyn Schlake, Extension educator, University of Nebraska-Lincoln. “No matter the size of your business, it’s important to understand the ACA rules and potential impacts on your operation.” 

The ACA also impacts farmers who have used tax-deductible arrangements for providing health benefits, including Health Reimbursement Accounts (HRAs).

Here are four common questions with their answers.

Q. How does the ACA affect my Section 105 employer-sponsored HRA?

A. A Section 105 medical reimbursement plan is a written plan that sets up an account to reimburse out-of-pocket qualified medical expenses not covered by insurance. The employer claims a business deduction, and the employee receives a tax-free fringe benefit. If you only have one employee, your Section 105 plan remains a valid benefit option under the ACA. However, a Section 105 plan covering more than one employee does not meet ACA requirements regarding the annual dollar value limits on essential health benefits or the employee cost sharing. See your accountant for other possible alternatives. 

Q. Will I have to pay two new Medicare taxes under the ACA law? How will they work?

A. It depends on your tax filing status and level of modified adjusted gross income for the year, says Marc Lovell, program director of the University of Illinois Agricultural and Consumer Economics Tax School. Two new Medicare taxes became effective January 2, 2013. The Net Investment Income Tax is a 3.8% tax on certain types of passive income (interest, dividends, rental income, and capital gains). If the income is derived from a “trade or business” and if the farmer “materially participates” in the activity generating the income, the income won’t be considered net investment income. Wages, self-employment income, and other sources of income subject to Medicare tax also may be subject to a new 0.9% Medicare tax. “The threshold for married filing jointly is $250,000. Farmers with incomes above this threshold may trigger tax liability for one or both of these new Medicare taxes,” Lovell says.

Q.  What is the Small Business Health Options Program?

A. Each state has a SHOP marketplace open to employers with 50 or fewer full-time equivalent employees. You can choose from four coverage levels: Bronze at 60%, Silver at 70%, Gold at 80%, and Platinum at 90%. (Plan levels vary by the amount of insurance benefits to the employee and out-of-pocket costs.) The online SHOP opens November 1. You can enroll through an insurance agent or broker now. “To use SHOP, you must offer coverage to all of your full-time employees,” Schlake says. “However, only 70% would need to purchase the SHOP insurance.” The plan runs for a year, based on the effective date of coverage. If you have questions, call 800/706-7893, Monday through Friday, 9 a.m. to 7 p.m. (EST).

Q. What about the ACA tax credit?

A. If you have fewer than 25 employees making an average of about $50,000 annually or less, you may qualify for tax credits through SHOP.

Small business owners will be eligible for a tax credit of 50% of the premium cost for employees only if they buy coverage through SHOP.

“Any remaining premium costs not covered by the credit still can be deducted from your taxes,” Schlake says. “The premium tax credit is retroactive to 2010. If you’ve provided employee insurance, consult with your tax accountant and file Form 8941.”

The credit is highest for businesses with fewer than 10 employees who are paid an average of $25,000 or less. To calculate your cost, use the premium estimator tool at

For more information, visit