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How the ACA Impacts Your Small Business Tax Planning

Affordable Care Act It’s no secret that the Affordable Care Act (ACA) is affecting small business owners across the country. New regulations and requirements make proactive tax planning especially important. If you don’t understand the ACA or you fail to factor it into your tax preparation, your financials suffer.

Here’s a brief overview of how the ACA impacts your small business, as well as tips to help you stay healthy in the face of new regulations and penalties.

The Employer Mandate

The ACA’s stated purpose is to facilitate health insurance coverage for all uninsured Americans and reduce long-term insurance costs. To achieve this, the ACA introduced several new mandates, incentives and penalties. Several of these impact small businesses.

A critical, recently implemented regulation directly affecting small business tax planning is the Employer Mandate (EM). The EM states that certain employers with 50 or more “full-time equivalent” employees (FTEs) may be assessed a penalty. The law also requires these employers to provide employees with “affordable” health coverage as defined by the law, or suffer penalties.

Determining ALE Status

Businesses that must cover employees or pay penalties are referred to as Applicable Large Employers (ALE). The government defines an ALE as an employer who averages at least 50 full-time employees, including FTEs, on business days during the preceding calendar year.

Determining if your small business meets the government’s ALE definition is crucial for accurate compliance with the Affordable Care Act. Examples of elements to be considered include:

  • Determining your number of full-time employees (employees working 30 or more hours per week)
  • Calculating your number of full-time equivalents (total hours worked by non-full-time employees, divided by 120)
  • Combining these numbers to arrive at your adjusted full-time employee status

While this calculation seems simple, there are nuances and exceptions that must be factored into your small business’s financial and ACA tax planning. To ensure you’re covering every angle in-depth and avoiding significant penalties, consider working with a compliance and tax preparation expert who’s capable of guiding your small business.

Preparing For The Future

The effects of mandatory employee coverage are significant, touching all of your small business’s operations, including cash flow, payroll and tax payments.

Proper planning is key. Here are some quick tips to help you manage the ACA’s impact on your small business:

  • Find out how to acquire tax credits if your organization has less than 25 FTEs.
  • If you are approaching 50 FTEs, make sure you determine and budget for increased costs immediately.
  • Learn which plans the government considers acceptable for FTEs.
  • Research and understand all new reporting requirements in effect this calendar year.
  • Work with an insurance broker to find the best policies and plans for your employees.

This list is by no means exhaustive. There are many rules, exceptions and parameters that must be considered when determining the ACA’s impact on your small business. Be sure to research the regulations in detail and include them in your year-round tax planning to avoid crippling penalties.

Do you have the support you need to manage your small business bookkeeping? Schedule a 30-minute appointment to speak with a local small business adviser.

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