Affordable Care Act has business tax implications

November 5, 2012

By James R. Armstrong, CPA, and Jodi Permenter, CPA

Editor’s note: This is Part 2 of a series on the Affordable Care Act (ACA) tax implications. It covers the implications for business owners.

Implications for business owners

The reform will affect businesses in different ways according to their size. Small businesses, those with fewer than 50 full-time employees, will not be required to provide health insurance coverage to their employees, and will not face fines for failing to provide coverage.

However, small businesses that choose to provide coverage for their employees must meet the new minimum plan requirements under the law, unless they already participate in a plan that has been grandfathered in.

These additional plan requirements could result in an increase in premiums for both employers and workers.

While no employer, regardless of size, is required to provide health insurance coverage to their employees, businesses who employ more than 50 workers may face financial penalties for failing to provide coverage, providing coverage that does not meet minimum value requirements, or providing coverage that is too expensive.

Employers who choose not to provide coverage will be fined $2,000 per full-time employee (excluding the first 30 employees) if even one of the employees obtains subsidized insurance through the Premium Assistance Tax Credit.

If the employer does offer insurance, but at least one full-time employee obtains a subsidy, the employer will be fined the lesser of $2,000 per full-time employee or $3,000 per employee receiving the subsidy.

Employees may qualify for the subsidy if the required contribution for coverage exceeds 9.5 percent of their household income.

Additionally, all employers who choose to provide health insurance coverage to their workers may be required to issue “free-choice vouchers” to certain employees.

If a business has selected a plan outside of their state insurance exchange, whose lowest-cost policy option would require an employee contribution of between 8 percent and 9.8 percent of the employee’s income, the business would be required to issue the employee a voucher, representing the amount the employer would have contributed to the employer-sponsored health insurance plan.

The employee may use the voucher toward the purchase of non-group coverage through the new Small Business Health Options Program (SHOP) Exchanges.

As previously reported by the AOA, the Affordable Care Act established the Small Employer Health Insurance Credit in 2010 (see AOA coverage at www.aoa.org/reform). The credit provides a maximum credit of 35 percent of health insurance premiums paid by qualifying small businesses on behalf of their employees for 2010-2013.

In 2013 and 2015, the credit increases to 50 percent, but employers must select a plan from SHOP in order to claim it.
Because SHOP plans must meet the new plan requirements, businesses who wish to claim the credit must terminate their “grandfathered” plan and adopt a new plan that meets the act’s requirements.

At the 2011 AOA Congressional Advocacy Conference, U.S. Small Business Administration director Karen Mills told conference attendees that many optometry offices were taking advantage of this program.


Many businesses have deferred implementing the provisions found in the Affordable Care Act awaiting the resolution of the court case challenging the Act’s constitutionality. With the Supreme Court’s ruling, businesses must work hard to implement the provisions before the deadlines outlined in the law.

Although the outcome of the next presidential election may also change the course of the Affordable Care Act, businesses must begin to implement the many provisions that will go into effect beginning in 2013 and 2014 in order to be in compliance.

Armstrong is a partner in the firm of May & Company, LLP. Permenter is a member of the professional staff of May & Company, LLP. The firm consults with optometrists in 30 states, assisting with their tax planning and preparation, QuickBooks support, and business planning. May & Company was established in 1922 and has offices in Louisiana, Mississippi, and Alabama. Armstrong can be reached at 601-636-4762 or by email at jarmstrong@maycpa.com.

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