You probably know that offering employee benefits helps you hire and retain top talent. But did you know that 88% of employees consider health insurance benefits when choosing a job?
Although the majority of employees want good health insurance benefits, it can be expensive to provide. The average annual employer contribution is $5,477 (single plan) or $13,049 (family plan) per employee.
To avoid hefty premiums, you may decide to forgo employer-sponsored health insurance. But, do employers have to offer health insurance? Find out your employer health insurance requirements below.
Do employers have to offer health insurance?
Under the Affordable Care Act (ACA), the answer to “Are employers required to provide health insurance?” depends on how many full-time equivalent employees you have.
According to the ACA, full-time employees are employees who work an average of 30 hours per week or 130 hours per month.
Part-time employee hours are also averaged to calculate how many full-time equivalent employees you have. Your full-time employees plus full-time equivalent employees equals the total number of full-time equivalent employees you have.
So, do employers have to provide health insurance?
Businesses with 50 or more full-time equivalent employees
Businesses with 50 or more full-time equivalent employees, known as applicable large employers (ALEs), are penalized if they don’t provide health insurance to their full-time employees. You must also provide dependent coverage to age 26.
Although you need to offer health insurance to employees and their dependents, you are not required to pay the full premium for coverage.
If you don’t offer qualifying and affordable health insurance to your full-time employees, you may be subject to IRS penalties.
Under the ACA’s employer shared responsibility provisions, the IRS penalizes ALEs if one or more of their full-time employees receives a premium tax credit for purchasing individual coverage through the Health Insurance Marketplace.
For 2022, penalized ALEs owe $2,750 for each full-time employee employed during the year, minus up to 30 employees.
If you offer health insurance during some months and not others, your liability is a portion of the annual penalty.
The IRS also penalizes ALEs if they offer health insurance to less than 95% of their full-time employees.
The IRS will notify you if you need to make an employer shared responsibility payment. And, the IRS will tell you how much you owe.
For more information on penalties, view the IRS’s website.
You must report health insurance coverage to the IRS on Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.
Also, you need to send a copy of Form 1095-C to each employee by January 31.
Businesses with fewer than 50 full-time equivalent employees
Businesses with fewer than 50 full-time equivalent employees are not penalized if they don’t offer health insurance.
If you don’t offer health insurance, you should provide information about the Health Insurance Marketplace to your employees.
SHOP insurance for small businesses
Although you are not required to offer health insurance, you may be eligible to enroll in the Small Business Health Options Program (SHOP). SHOP is an affordable health insurance option for qualifying small businesses.
You are eligible for the Small Business Health Options Program if you meet all four of the following requirements:
- Have 50 or fewer full-time equivalent employees
- Offer coverage to all full-time employees (those who work an average of 30 or more hours per week)
- Enroll at least 70% of employees you offer insurance to
- Have an office or employee work site in the state whose SHOP you want to use
Qualifying small businesses that enroll in a SHOP plan may also be eligible for the Small Business Health Care Tax Credit, which is worth up to 50% of your premium costs.
To qualify for this small employer health insurance tax credit, you must have fewer than 25 full-time equivalent employees, have an average employee salary of $50,000 per year or less, pay at least 50% of your full-time employees’ premium costs, and offer SHOP coverage to all of your full-time employees.
For more information on the Small Business Health Options Program, check out HealthCare.gov.
If employees contribute to their health insurance plans, remember to deduct premiums from their wages. With Patriot’s online payroll software, setting up deductions for things like health insurance is easy. Get your free trial today!
This article is updated from its original publication date 9/10/2018.This is not intended as legal advice; for more information, please click here.