FAQ - Will Our Small Business Be Penalized for Not Offering Health Insurance?

Editor's Note: This article has been updated with the most recent health reform guidelines. The article was originally published on August 12, 2014.

If you're like most small business owners, you still have questions about how the Affordable Care Act (ACA or Obamacare) impacts your business, particularly whether you will be penalized for not offering health insurance.

In this article, we'll answer common small business questions about the requirement to offer health insurance and related reporting requirements.

Are We Required to Offer Health Insurance?

No. If your business has fewer than 50 full-time-equivalent (FTE) employees, then you are not mandated to offer health insurance under the ACA.

Will We Be Penalized for Not Offering Insurance?

No. If your business has fewer than 50 FTE employees, then there are no tax penalties and no “Employer Shared Responsibility Fees” for not offering health insurance.

How Do I Calculate Our FTE Employees?

There are three steps for calculating the number of FTE employees you have:

1. Calculate the number of full-time employees. A full time employee works on average 30 hours per week in a given month.

2. Factor in your part-time employees. To calculate the FTE of part-time employees, add the number of hours worked by part-time employees in a given month. Divide the total number by 120.

3. Add together the full-time employees and the FTE of the part-time employees. If the sum is over 50, you are an “applicable large employer.” This means that the employer mandate does apply to your business.

What If Our Business Grows to More Than 50 FTE Employees?

Businesses with more than 50 FTE employees who do not provide minimum, affordable health insurance will be required to pay the Employer Shared Responsibility fee if/when an employee purchases individual insurance and receives a premium tax credit.

However, there has been transition relief available for some employers with 50-99 FTE employees. 

For 2015, the Employer Shared Responsibility fee is equal to the number of full-time employees for the month (minus 80) multiplied by 1/12 of $2,000.

In 2016, the Employer Shared Responsibility fee is equal to the number of full-time employees for the month (minus 30) multiplied by 1/12 of $2,000.

What Are the New Health Benefits Reporting Requirements?

Although small businesses are exempt from the Employer Shared Responsibility fees and reporting requirements for applicable large employers, there are new reporting requirements that may apply to your small business, depending on how many employees you have and the type of health benefits you are offering. For example:

• New W-2 Reporting Requirements: If you have more than 250 W-2 employees, you must report the cost of employer-sponsored group health coverage on your employee’s W-2 forms.

• PCORI/CER Plan Fees: If you offer a Healthcare Reimbursement Plan (HRP) of another self-insured health plan, you are required to pay the Patient-Centered Outcomes Research Institute (PCORI) fees. This is a research fee that is paid on an annual basis and is turned in with a Form 720.