New messages from Aflac | Close XView Notifications

Notifications from Aflac

855.502.3522

For existing account servicing call: 800.992.3522

Business Hours

Monday thru Friday . 8:00 AM - 5:00 PM EST

Request a Quote
Provide the following information about your company.

Learn about individual policies.
For companies with fewer than three employees, please check out our individual and family coverage. Learn more.

I'm interested in:

Select all that apply

All fields are required.

*Indicates required field

By hitting "Submit" I agree to receive autodialed calls and texts from Aflac, independent contractors acting on Aflac’s behalf, and third parties acting on Aflac’s behalf, including but not limited to Five9 at the number I have provided. Messages and data rates may apply. I understand that I am not required to provide my consent as a condition of accessing Aflac’s website, purchasing any product or receiving any Aflac services.

Thank You!

An Aflac representative will contact you.

Your confirmation number is .

If you have any questions regarding your request, contact us at addbenefits@aflac.com

Please provide your confirmation number listed above for reference.

Close

By: Carolyn Smith, John Hickman and Scott Harty, Alston & Bird LLP

OF INTEREST TO EMPLOYERS WITH FEWER THAN 25 EMPLOYEES

Employers with fewer than 25 full-time equivalent employees (FTEs) may be eligible for a tax credit to partially offset the cost of helping their employees buy health coverage. In general, the credit is available only with respect to insurance purchased though a Small Business Health Plan Options Program (SHOP) exchange. As the health care market has been changing, there are an increasing number of counties in the United States in which SHOP coverage is not available. The IRS recently issued Notice 2018-27 explaining how the credit works in situations for 2017 or later. This advisory provides a high-level overview of the credit and the recent IRS guidance.

ELIGIBLE SMALL EMPLOYERS

In general, an employer is eligible for the small-business health tax credit if the employer:

  • Has fewer than 25 FTEs.
  • Pays average wages of less than a specified dollar amount. The dollar limit on average wages was initially set at $50,000 and is subject to adjustment for inflation. The limit for 2017 is $53,000.
  • Pays at least half of the employee-only health coverage premium for full-time employees. The premium must be paid under a “qualifying arrangement” that meets detailed requirements in IRS regulations.

Note, however, that the amount of the credit starts to phase out for employers with more than 10 FTEs OR average wages above a specified dollar amount ($26,000 for 2017). Because of these phase-outs, the credit for some employers will be reduced to zero, even if they meet the general requirement of fewer than 25 FTEs and average wages of less than $53,000 (for 2017). For more information, see the discussion below under “The Amount of the Credit.”

SHOP COVERAGE AND CREDIT PERIOD

The small-business tax credit was one of the first provisions that came into effect when health care reform (the Affordable Care Act) became law. The credit was initially available starting in 2010 and applied to a very broad range of health coverage. A few changes to the rules for the small-business tax credit took place in 2014 that are still in effect today. For instance, the credit is now available only with respect to coverage purchased through a SHOP exchange.

A small business can claim the credit for only two consecutive taxable years from 2014 and beyond. The IRS refers to this two-year period as the “credit period.” Years prior to 2014 do not count toward the credit period. For example, if a business claimed the credit in 2012 but was not eligible to claim the credit again until 2015 (and did claim the credit for 2015), the credit period would be 2015 and 2016. This employer could not claim the credit in any year after 2016. Because of this two-year limitation for 2014 and later years, some employers may have already exhausted their eligibility for the credit. Other employers may still have some credit years available.

WHAT IF SHOP EXCHANGE COVERAGE IS NOT AVAILABLE?

The issue of how the credit applies when the employer’s principal place of business is in a county that does not have SHOP coverage is not new. Since the SHOP exchanges first became operational in 2014, there have always been some counties that do not have SHOP coverage. The IRS has previously addressed this issue for 2014, 2015 and 2016 in prior notices. In 2017, there were over 200 counties without SHOP coverage.

The recent guidance in Notice 2018-27 provides relief for certain eligible small employers whose principal place of business is in a county without SHOP exchange coverage in 2017 or a later year. Qualifying employers need to have first claimed the credit in a previous year (as described below). The relief allows these qualifying employers to claim the credit with respect to any coverage that would have qualified for the credit under the rules in effect before 2014. The pre-2014 definition of qualifying coverage was broad and includes major medical coverage, as well more limited plans, such as dentalor vision-only coverage. Pre-2014, the credit was also available for coverage such as specified disease or critical illness coverage (e.g., cancer coverage) and hospital indemnity or other fixed-indemnity coverage. The credit is not available for accident or disability coverage.

Even though in some circumstances, employers who qualify for the relief may be able to claim a tax credit for a portion of the employer contributions for supplemental coverage in 2017 or a later year, Aflac coverage is not major medical coverage or a substitute for such coverage.

In order to qualify for the relief, the employer:

  • Must have first claimed the credit for 2016, either for SHOP coverage or under the relief provided by the IRS for employers in counties without SHOP coverage in Notice 2016-76. In this case, the relief in Notice 2018-27 applies for the employer’s 2017 taxable year, which is the last year in the employer’s credit period; or
  • Must first claim the credit for 2017 or a later year for coverage purchased through a SHOP exchange. In this case, the relief also applies only for the second (and last) year in the employer’s credit period.

In other words, an employer cannot claim the credit for the first time based on the relief in Notice 2018-27. For example, suppose an employer has never claimed the credit. In 2017, there is no SHOP coverage available in the county where the employer’s principal place of business is located. The employer is not eligible for the relief provided in Notice 2018-27.

In one further wrinkle, the relief does not apply in the state of Hawaii, which has received approval from the federal government to waive certain provisions of the Affordable Care Act and adopt its own approach to health coverage. As a result of this waiver, Hawaii is not required to operate a SHOP Exchange for 2017-2021 and the small employer tax credit is not available to employers in Hawaii for plan years beginning during this period.

THE AMOUNT OF THE CREDIT

The amount of the credit is generally 50 percent of the premium paid by the employer; for tax-exempt organizations, the credit percentage is 35 percent. Salary reduction contributions paid by the employee do not count as contributions by the employer for purposes of the credit. The credit is calculated on a taxable year basis. Note, for years before 2014, the credit percentages were lower – generally 35 percent, with a 25 percent credit for tax-exempt employers.

The credit amount may be reduced in a number of circumstances. For instance, the credit is reduced if the premiums paid by the employer are more than the average premium for the small-group market in the rating area in which the employee enrolls for coverage.

In addition, the credit amount phases out for employers that have more than 10 FTEs OR average wages above a certain dollar amount, which is $26,000 for 2017 and is indexed for inflation. The effect of these phase outs is that smaller employers with lower average wages will get a larger credit. These phase-outs may reduce the credit to zero for employers that meet the general eligibility requirements of fewer than 25 FTEs and average wages of less than $53,000.

CLAIMING THE CREDIT

An eligible small business claims the credit by filing a federal tax return and attaching IRS Form 8941. Detailed information on the credit is found in the Instructions for Form 8941.

A small-business employer that doesn’t owe tax for a year can carry the credit back or forward to another tax year(s). The amount of the credit is less than the total premiums paid by the employer, so small businesses may still claim a deduction for the amount of premiums they pay in excess of the credit amount.

For tax-exempt employers, the credit is refundable, which means that a tax-exempt employer may receive a credit even if it has no tax liability. Tax-exempt employers claim the credit by filing Form 990-T (Exempt Organization Business Tax Return) and attaching Form 8941.

WHERE TO FIND MORE INFORMATION

IRS Notice 2018-27 may be found here. To see if a particular county had SHOP coverage in 2017, see the IRS list of federal exchanges without SHOP coverage and state-based exchanges without SHOP coverage. To determine whether SHOP coverage is available in 2018, the IRS directs employers to their Plans and Prices Tool on healthcare.gov/small-business. When employers arrive at healthcare.gov/small-business, select “Get Coverage” and then “See Plans and Prices.” Employers in states operating a state-based SHOP may visit their state-based SHOP’s website directly or use the IRS Plans and Prices Tool.

The IRS has additional information relating to health care reform for small employers available on its website.

irs.gov/affordable-care-act/employers/affordable-care-act-tax-provisions-for-small-employers irs.gov/affordable-care-act/employers/small-business-health-care-tax-credit-and-the-shop-marketplace

The information above is provided for general informational purposes and is not provided as tax or legal advice for any person or for any specific situation. Employers should consult their own tax or legal advisers regarding the small employer tax credit. Aflac herein means American Family Life Assurance Company of Columbus and American Family Life Assurance Company of New York.