IRS Health Care Tax Considerations for Small Employers with Fewer than 50 Employees

aca tax provisions

Health care tax, which is often known as Affordable Care Act (ACA) or ObamaCare not only affects individuals and families but also small and large businesses in the United States. The law was signed by President Barack Obama on March 23, 2010. However, the rules are a bit different for small and large businesses.

As of now, a small business with less than 50 employees can visit the dedicated health insurance marketplace called Small Business Health Options Program or generally known as SHOP, to compare and purchase affordable health plans for their employees.

A recent article from IRS indicates some of the tax provisions of ACA, which are only applicable for employers with fewer than 50 full-time or equivalent (FTEs) employees. The said employers should be aware of the following tax provisions or consideration to save time and money and abide the ACA and IRS laws. The tax considerations are:

  • Employers with less than 50 full-time employees or equivalent are not subjected to employer shared responsibility provision. According to IRS, more than 95 % of employers have less than 50 full-time employees in the US.

(FYI, Under the Affordable Care Act’s employer shared responsibility provisions, only larger businesses should either provide affordable insurance to their employees, which meets a minimum value standard, or if one of their employee gets a better deal in the individual marketplace. The latter is referred to as “the employer mandate” or “the pay or play provisions.”)


  • For these businesses, it is extremely important to calculate the number of employees accurately and precisely throughout the year. Moreover, the responsibility for those businesses, whose employees fluctuates throughout the year, is increased furthermore in order to fall under this tax consideration category.
  • As mentioned above, they can purchase health insurance coverage through the SHOP for their employees.
  • As for the employers with less than 25 employees with average annual wages of less than $50,000 are concerned, they are qualified for the small business health care tax credit only if they cover minimum 50 % of their full-time employees’ premium costs. In addition, they should get coverage only through the SHOP.

All the employers regardless of the size of their businesses, who are providing self-insured health coverage to their employees, MUST annually file information returns for their covered individuals with the IRS and furnish statements to the said individuals. The first information returns should be filed in 2016 for the calendar year 2015 before February 29, 2016. If the employers are E-Filing, then the last date is March 31, 2016. However, the first individual statements must be furnished on or before January 31, 2016.

The cost or amount of these health care benefits, wherein both the portions should be paid by the employer and the employees, should be reported in box 12 of the Form W-2, with Code DD to identify the amount. As for the health FSA (Flexible Spending Account) is concerned, the amount reported should not include the amount of any salary reduction contributions.

In addition, the Internal Revenue Service offer respite for the smaller employers, who files less than 250 W-2 forms, by making this requirement optional for them until further guidance is issued.

If you have not yet filed the ACA information, then you can easily report ACA requirements based on health care coverage provided to employees by using CheckMark 1095 Software.

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