1. berrydunn.com | GAIN CONTROL THE AFFORDABLE CARE ACT “WHAT’S IN IT FOR MY SMALL BUSINESS?” TAX CONSIDERATIONS January 21, 2014

2. 2 INDIVIDUAL MANDATE 1/1/2014 – Small Employer Health Coverage Individual advance tax credits available Income requirements (100% to 400% of Fed. Poverty Level) 2013 Single @ 400%=$44,680 2013 Family of 4 @ 400% = $94,200 Coverage requirements May not be eligible for Medicaid or Medicare or private coverage May not be eligible for Employer coverage (Affordable & Minimum Value)

3. 3 INDIVIDUAL MANDATE 1/1/2014 – Small Employer Health Coverage Pre-tax nature of employer coverage Employer premiums are fully deductible / payroll tax free Employee portion is income & payroll tax free (if paid through a Sec. 125 plan) Employers can provide pre-tax HRAs, Health FSAs and HSAs After-tax nature of Exchange coverage Employee cost, after subsidy (if any), is after-tax Any Employer ‘bonus’ will be subject to income & payroll taxes HSAs available IF Exchange policy is a HDHP

4. 4 INDIVIDUAL MANDATE 1/1/2014 – Small Employer Health Coverage Will an offer of Employer health coverage void Employee’s ability to qualify for an Exchange credit? Yes – if coverage is Affordable & provides Minimum Value But – –Employer need not offer coverage to Spouse –A way to leave Spouse credit eligible But – Household Income may make spouse ineligible!

5. 5 INDIVIDUAL MANDATE 1/1/2014 – Small Employer Health Coverage May an Employer use an HSA and/or an HRA to help make a health plan Affordable? HSA – NO. May not use an HSA to pay premiums. HRA – Yes, if integrated and $ only available for premiums. May an Employer use an HSA and/or an HRA to help make a health plan meet Minimum Value? HSA – Yes. HRA – Yes, if integrated and $ only available for cost-sharing.

6. 6 INDIVIDUAL MANDATE 1/1/2014 – Small Employer Health Coverage Employer pre-tax payment for individual health insurance premiums – prior to 1/1/2014 One way for small Employers to provide ‘custom’ employee health coverage Direct Employer premium payment or reimbursement Use of HRAs possible Avoided income taxes and payroll taxes Non-discrimination rules have been non-existent

7. 7 INDIVIDUAL MANDATE 1/1/2014 – Small Employer Health Coverage IRS Notice 2013-54 – Effective 1/1/2014 HRA, Employer Payment Plan, Section 125 Health FSA These are group health plans subject to the ACA. Standing alone, they fail ACA requirements (e.g., prohibition on annual dollar limits & first $ preventative care) They may be integrated with an ACA compliant group health plan Integration with an individual policy is not allowed REVIEW ALL SUCH PLANS IF STILL EXISTENT

8. 8 INDIVIDUAL MANDATE 1/1/2014 – Small Employer Health Coverage IRS Notice 2013-54 – Effective 1/1/2014 Exceptions One-participant plans (sole-proprietors w/o employees) Standalone retiree-only plans Certain Health FSAs if carefully designed (excepted benefits) Use of HSA with individual HDHP Employer contributions must be comparable HSA $ can not be used to pay premiums (by law)

9. 9 SMALL BUSINESS HEALTH CARE TAX CREDIT IRC §45R - Maximum credit equals 35% of employer health insurance Premium cost (increases to 50% for 2014-2016) 25 or fewer FTE’s to qualify for any credit Aggregation rules apply Average annual wages less than $50,000, and Employer pays 50% or more of insurance premiums Must use SHOP starting in 2014

10. 10 SMALL BUSINESS HEALTH CARE TAX CREDIT DETERMINATION OF NUMBER OF FTES Divide total annual hours/2,080 = number of FTEs EE hours in excess of 2,080 do not count Excluded employees Owners & their family members Seasonal Workers (< 120 days/year)

11. 11 SMALL BUSINESS HEALTH CARE TAX CREDIT DETERMINATION OF AVERAGE ANNUAL WAGES Divide total wages by # of FTEs = Average annual wages All wages paid to qualifying employees are included – even for hours in excess of 2,080. But – exclude wages paid to: Owners & their family members Seasonal Workers (< 120 days/year) The relevant period is the Employer’s taxable year.

12. 12 SMALL BUSINESS HEALTH CARE TAX CREDIT MAXIMUM CREDIT EQUALS 35% OF EMPLOYER HEALTH INSURANCE PREMIUM COST (50% FOR 2014-2016) 10 or fewer FTEs to qualify for maximum credit $25,000 or less average wages to qualify for maximum CREDIT PHASE OUT BETWEEN 10-25 FTE’s Average wages 25K-50K

13. INTERESTED IN MORE? Contact Roger Prince, a Senior Manager in BerryDunn’s Employee Benefit Consulting Group, to learn more. rprince@berrydunn.com Phone 207.541.2314 Websiteberrydunn.com Blogberrydunn.com/firmfootingberrydunn.comberrydunn.com/firmfooting 13