Congress enacted the Affordable Care Act (ACA) in an attempt to make comprehensive and affordable health insurance more readily available to individuals and employers.
Since the Patient Protection and Affordable Care Act, as the ACA is officially named, became law in 2010, the federal government has slowly implemented certain provisions. Others are set to go into effect in upcoming years. In 2012, the Supreme Court upheld the portion of the ACA that has become known as the “individual mandate” as constitutional under the taxing power of Congress.
Parameters and deadlines for implementation of the ACA are ever-changing. It is important to remain aware of changes to ensure that your church or ministry is in compliance.
The Affordable Care Act is a new, complex, and frequently evolving law. Consult with a tax or legal professional who is well-versed in the ACA to be sure that your ministry complies with it.
For ministries, the most important point to understand is that churches and ministries are not specifically exempt from ACA requirements. There is a distinction in the ACA between large and small employers. Depending on the number of individuals your church or ministry employs, you will need to consider different requirements.
The following information outlines some high-level conditions that large and small ministry employers should consider as they assess ACA requirements. Also refer to the resources noted at the conclusion of this article when evaluating the best approach for your ministry. As employers, churches and ministries must carefully consider which portions of the ACA apply to them in order to determine the appropriate steps to take.
The ACA is a new, complex, and frequently evolving law. Ministry leaders should consult with a tax or legal professional who is well-versed in the ACA to be sure that their ministry complies with the law. Regular, ongoing consultations with that individual will be important to ensure that the ministry remains in compliance as the ACA evolves, given the law's complexity and changing nature.
WHO IS A LARGE EMPLOYER?
The ACA defines a “large employer” as any employer with 50 or more “full-time equivalent” employees. Employees are considered full time if they work 30 or more hours in a week. Employers will need to use a look-back period to determine if they had enough employees to fall into this category. A look-back period is a specific length of time used in calculating the average weekly hours of service to measure employee full-time status.
If your ministry has close to the threshold number of 50 employees, it would be beneficial to speak with a tax or legal professional to determine whether you will be considered a large or small employer. The look-back period calculation can become complex.
WHAT IS REQUIRED?
Some of the main requirements for large employers include:
To avoid penalties, the ACA requires large employers to provide health insurance coverage to full-time employees that is both affordable and meets the minimum value standard.
In addition, the ACA requires all health insurance plans to provide coverage for “essential health benefits.” Although this requirement mainly affects health insurance providers, employers should be aware that their health insurance plans may be changing (or likely have already changed) to accommodate the categories of coverage that the ACA considers essential. Here are the 10 categories of essential health benefits that must be covered:
How each of these services is covered varies widely depending on the plan and other factors, such as the network of doctors, the deductible, and other out-of-pocket costs. As a result, the variance of coverage specifics among providers has raised concerns and questions from some ministries, and even the courts.
Any employer subject to the Fair Labor Standards Act is required to provide notice to all employees about the availability of the health insurance marketplace. The ACA required that employers send initial notices to their employees by October 1, 2013. Going forward, employers must provide this notice to new hires within 14 days of their employment start date. To assist with compliance, the Department of Labor provides model notice forms for employers to use and a short FAQ to answer employer questions.
The ACA requires employers that provide group health insurance to employees to report the total cost of the coverage in Box 12 of the Form W-2. All employers providing group health insurance are generally required to do this; however, this reporting is optional for employers who filed fewer than 250 Form W-2s in the preceding year.
Affordable Care Act Changed W-2 Reporting in 2013, an article from MinistryWorks, Brotherhood Mutual’s payroll and tax filing service, addresses this exception. The IRS also provides guidance regarding W-2 reporting requirements in Form W-2 Reporting of Employer-Sponsored Health Coverage.
WHAT IS THE EMPLOYER-SHARED RESPONSIBILITY PAYMENT?
Beginning in 2015 or 2016—generally 2015 for employers with 100 or more employees and 2016 for employers with 50 or more employees—large employers may be required to pay the “employer-shared responsibility payment.” This payment differs based on whether or not the employer offers health insurance to employees.
The payment is triggered if one of your employees becomes eligible for a tax credit by purchasing coverage through a health insurance marketplace. (Health insurance marketplaces are either state or federally run insurance exchanges where individuals can shop for and purchase health insurance.) Employees are eligible for this tax credit only if the health insurance plan that your church or ministry offers is not affordable and does not meet the ACA’s minimum value standard as described above.
SPECIAL RULES APPLY TO MINISTRIES OFFERING INSUFFICIENT HEALTH INSURANCE OR NONE AT ALL
Large employers offering health insurance that is not affordable and doesn’t meet the minimum value standard will pay $3,000 annually for each employee who qualifies for the tax credit to purchase coverage through a health insurance marketplace. Employers that do not meet these standards are not required to make such a payment for employees who do not purchase coverage through a marketplace.
For example, if you have 50 full-time employees and three of them qualify for the credit by purchasing coverage through a marketplace, you will pay $3,000 for three employees, totaling $9,000. (If the IRS determines that an employer is liable for a shared responsibility payment, the IRS will send a notice and request for payment. That notice will tell the employer on how to make the payment.)
Large employers that do not offer health insurance at all will pay $2,000 annually with their tax return for all full-time employees. These employers are allowed to exclude their first 30 employees from the payment. For example: If you have 50 full-time employees and do not offer health insurance, you will pay $2,000 for 20 employees, totaling $40,000. (See the note above about how the payment is made.)
WHO IS A SMALL EMPLOYER?
A ministry that employs less than 50 “full-time equivalent” employees during a look-back period will fall into the category of “small employer.” If your ministry has close to the threshold number of 50 employees, it would be beneficial to speak with a tax or legal professional to determine whether you will be considered a large or small employer. The look-back period calculation can become complex.
WHAT IS REQUIRED?
Some of the main requirements for small employers include:
Small employers are not required to provide health insurance to their employees. However, if they decide to provide coverage, it must meet the same requirements that apply to large employers. Small employers should carefully consider whether they are able to and/or interested in providing coverage to employees.
Any employer subject to the Fair Labor Standards Act is required to provide notice to all employees of the availability of the health insurance marketplace. The ACA required that employers send initial notices to their employees by October 1, 2013. Going forward, employers must provide this notice to new hires within 14 days of their employment start date. To assist with compliance, the Department of Labor provides model notice forms for employers to use and a short FAQ to answer employer questions.
Employers that provide group health insurance to employees are required to report the total cost of the coverage in box 12 of the W-2 form. All employers providing group health insurance are generally required to do this; however, this reporting is optional for employers who filed fewer than 250 W-2s in the preceding year.
Affordable Care Act Changed W-2 Reporting in 2013, an article from MinistryWorks, Brotherhood Mutual’s payroll and tax filing service, addresses this exception. The IRS also provides guidance regarding W-2 reporting requirements: Form W-2 Reporting of Employer-Sponsored Health Coverage.
WHAT IS THE EMPLOYER-SHARED RESPONSIBILITY PAYMENT?
Small employers are not subject to the “employer shared responsibility payment.” This is true even if the small business elects to provide health insurance to employees.
WHAT IS THE SHOP MARKETPLACE?
Smaller employers that might have difficulty accessing group health plans may be able to find coverage options through the Small Business Health Options Program (SHOP) Marketplace. The SHOP Marketplace is an insurance exchange where small businesses can access health insurance plans to provide to employees.
In 2014, only employers with 50 or fewer full-time employees may access the SHOP Marketplace. Beginning in 2016, employers with 100 or fewer full-time employees also may be able to use the SHOP Marketplace, thus broadening the group of employers currently defined as “small employer.” Some states created their own marketplaces and others elected to participate in the federally run marketplace. In order to use the SHOP Marketplace, employers must be willing to offer health insurance to all full-time employees.
WHAT IS THE SMALL EMPLOYER TAX CREDIT?
Certain small employers that purchase insurance coverage for their employees through a SHOP Marketplace may be eligible for the Small Business Health Care Tax Credit. To be eligible for the credit, you must meet all of the following criteria:
Beginning in 2014, the credit for tax-exempt employers is generally 35 percent of the premiums paid. The credit may be taken over two consecutive years. Ministries that think they might be eligible for this credit should consult their legal or tax advisor to determine whether the credit is something they should pursue. The IRS provides guidance regarding the credit: Small Business Health Care Tax Credit for Small Employers.
The Affordable Care Act is a complex set of laws affecting nearly all church and ministry employers. Knowing more about the basics can be a helpful starting point to determine how the ACA affects your ministry. Carefully consider what steps your ministry might need to take and discuss questions further with trusted legal and tax advisors.
For more information about the Affordable Care Act, check out these resources.
Thank you for your interest in Brotherhood Mutual. We appreciate the opportunity to provide your church or other ministry with an insurance quote and will reply to your request as soon as possible.
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