What You Need to Know about the Affordable Care Act (also known as Obamacare) in 2017 by Adam Cohen, CPA

Posted on February 21, 2017 by Adam Cohen

One of President Donald Trump’s first executive orders is a broad directive instructing federal agencies to begin “to minimize the economic and regulatory burdens of the Affordable Care Act” on individuals, including “families, healthcare providers, health insurers, patients…or makers of medical devices, products or medications.” While Trump’s action supports the GOP’s long-standing battle cry of “repeal and replace Obamacare” it is doubtful that any significant changes will be made and put into effect in the current year. As a result, individual taxpayers and businesses that are subject to the ACA must conform to the existing law when filing their 2016 tax returns and be prepared to meet the law’s reporting regulations throughout 2017.

Requirements for Individuals

The Affordable Care Act requires all U.S. taxpayers to have minimum essential health insurance coverage for themselves and each member of their families during every month of the year, unless they qualify for a covered exemption. Failure to have coverage will result in an individual shared responsibility payment penalty for 2016 in an amount that is the higher of:

  1. 2.5 percent of a household’s modified adjusted gross income (MAGI) above the tax filing threshold, or
  2. A flat payment of $695 per adult and $347.50 per child under 18, up to a maximum of $2,085 per family.

These penalties, which must be paid along with individuals’ 2016 tax return filings, are capped at the cost of the national average premiums for a bronze-level health plan available through the Marketplace. For 2016, these costs total $2,676 per year (or $223 per month) for individuals and $13,380 per year (or $1,115 per month) for families of five or more.

To report compliance with the law, individuals must simply check a box on their individual tax returns verifying that they had health insurance for every month during the prior year. Forms received from employers do not need to be sent to the IRS, however, individuals should hold onto these forms to verify coverage.

Requirements for Businesses with 50 or More Employees

Much of the responsibility for ensuring individuals have appropriate healthcare coverage falls to their employers. Under the current law, applicable large employers (ALEs), which include for-profit and not-for-profit businesses as well as government entities with 50 or more full-time equivalent (FTE) workers, are required to provide “minimum essential” health insurance coverage to 95 percent of their full-time workforce and those employees’ dependent children, excluding step-children and foster children, under the age of 26. The 95 percent rule also applies to those full-time employees who have health coverage through another source, such as Medicare, Medicaid or a spouse’s employer.

Businesses employing part-time or seasonal workers during any month of the prior calendar year have the complex task of calculating whether these employees should be included in its characterization as an ALE. After adding up the total hours worked by part-timers during a month, businesses should divide that amount by 120 and add in the number of their full-time workers. If this calculation exceeds 49, the employers are considered ALEs and has a requirement to offer health insurance to 95 percent of their full-time and full-time-equivalent workers.

ALEs that fail to meet these thresholds and that have at least one full-time employee receiving a Premium Tax Credit for coverage purchased through the Marketplace are required to pay an employer shared responsibility payment. This assessment also applies to applicable large employers who provide health coverage for 95 percent of full-time employees but have one or more full-time employees (not full-time equivalents) who purchase coverage through the Marketplace and receive the Premium Tax Credit.

For the 2016 tax year, the employer shared responsibility payment is $2,160 for each non-insured full-time employee after the first 30, as well as a $3,240 penalty for each full-time employee who must purchase insurance through the federal Marketplace to maintain his or her individual coverage responsibilities.

Employers that provide health insurance to workers have a requirement to report this information to employees as well as to the IRS. For 2017, ALEs, including those that are self-insured, should keep the following deadlines in mind.

February 28:    Deadline for paper filers to file with the IRS Form 1095-B, Health Coverage Information Return; Form 1095-C, Employer-Provided Health Insurance Offer and Coverage; Form 1094-B, Transmittal of Health Coverage Information Returns; and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer

March 2:          Deadline to furnish to employees Form 1095-B, Health Coverage Information Return and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage

March 31:        Deadline for e-filers to file with the IRS Form 1095-B, Health Coverage Information Return; Form 1095-C, Employer-Provided Health Insurance Offer and Coverage; Form 1094-B, Transmittal of Health Coverage Information Returns; and Form 1094-C, Transmittal of Employer-Provided Health Insurance

Requirements for Small Businesses with Less than 50 employees

Businesses with 50 or fewer employees have the option to provide workers with affordable health insurance when they purchase coverage through the Small Business Health Options Program (SHOP). When this is the case, the business must withhold from wages and report an addition 0.9 percent Medicare Tax on compensation paid to single workers earning $200,000 or more annually, or $250,000 or more for married workers filing jointly.

Those small businesses that have fewer than 25 full-time equivalent employees with an average annual compensation of $50,000 or less may qualify for an employer health care tax credit that can be as high as 50 percent, when those employers offer and pay the premiums for employees’ health insurance.

Interpretations of Trump’s “Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal” is varied. On the one hand, the order provides taxpayers with a broader excuse for a hardship exemption from the ACA and provides agencies, such as the IRS, the “discretion…to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any state or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.” However, at this moment in time, the IRS has not changed its policy of rejecting tax returns which reflect a lapse in taxpayers’ healthcare coverage during 2016 and which fail to provide a valid exemption from the law or fail to include an individual shared responsibility payment.

For many taxpayers, the change in administration is making a complex law even more complicated. As a result, individuals and businesses should meet with their accountants to ensure they understand and comply with the provisions of Affordable Care Act.

About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail