While 2016 may be many months away, it’s not too soon to start planning now for your health coverage for the coming year. There’s already buzz about double-digit increases in premiums in certain locations, but this isn’t the only change coming. There are also changes in tax rules for healthcare in 2016.
Here’s what you need to know so you can start to plan now:
1. Smaller “Large” Employers Subject to the Mandate
The employer mandate, which was supposed to start in 2014, was postponed for large employers (those with 100 or more employees) to 2015. However, starting in 2016, employers with 50 to 99 employees must start to offer coverage or pay a penalty. The mandate applies to those with full-time employees and full-time equivalent (FTE) employees totaling 50 or more.
To determine whether you’re subject to the employer mandate, average the number of your employees across the months in the year (e.g., the number of workers in 2015 determine whether the mandate applies to you in 2016). Find details about how to figure these numbers from the IRS  (PDF).
Note: An employer that was not in existence on any business day in the prior calendar year is considered a large employer in the current year only if both of the following conditions apply:
- The employer is reasonably expected to employ an average of at least 50 full-time employees (including FTEs) on business days during the current calendar year, and
- The employer actually employs an average of at least 50 full-time employees (including full-time equivalents) on business days during the calendar year.
You can’t duck the employer mandate by splitting business activities into separate companies so the numbers on the separate payrolls fall below the mandate level. Companies that have a common owner or are otherwise related generally are combined and treated as a single employer, and so would be combined for purposes of determining whether or not they collectively employ the requisite number for the employer mandate.
2. Employer Contributions Needed to Avoid Penalties
If you’re required to provide coverage, you can still be subject to a tax penalty. This results if the coverage offered is “unaffordable” to employees. Coverage is deemed to be unaffordable if an employee is required to pay more than a set percentage of his or her income. For 2016, the percentage is 9.66 percent of W-2 wages.
3. Health Savings Accounts
You can provide health coverage for your staff at reduced cost if you use a health savings account (HSA). This combines a high-deductible health plan (HDHP) — a “bronze” plan on a government exchange or from a private insurer — with an IRA-like savings account. The definition of an HDHP is crafted annually by the IRS. Similarly, the deductible contribution limit for the savings part is also set by the IRS.
For 2016, to be an HDHP, the policy must have a minimum deductible of $1,300 for self-only coverage and $2,600 for family coverage. Also, the maximum out-of-pocket limit under a policy must be capped at $6,550 for self-only coverage and $13,100 for family coverage.
If you have such a policy, then you can contribute to an HSA. If the company contributes to an employee’s account, the company gets the deduction. If the employee makes the contribution, the employee deducts it from gross income (no itemizing is required).
For 2016, the maximum deductible contribution amount to HSAs for 2016 is $3,350 for self-only coverage and $6,750 for family coverage. Those who are age 55 or older by year end can add an additional $1,000. Thus, if you and your spouse are both age 62 in 2016 and have an HDHP providing family coverage, your contribution limit is $8,750 ($6,750 + $1,000 +$1,000).
Find details about HSAs in IRS Publication 969  (PDF). The numbers haven’t been updated, but the basic rules are unchanged.
4. Small Employer Health Insurance Credit
If you’re a small employer who isn’t required to provide health coverage you’re encouraged to do so by means of a tax credit. You can reduce your tax bill dollar-for-dollar by half of the premiums you pay if you meet certain conditions:
- You pay at least 50 percent of the premiums for employees
- You must have fewer than 25 full-time employees
- The average annual wages for these workers cannot exceed $25,000 for a full credit (double that until the credit phases out). The payroll limit is adjusted annually for inflation (e.g., $25,800/$51,600 for 2015). The adjusted limit for 2016 will be announced later this year.
- You buy coverage through a government exchange for small employers, called SHOPs.
- You have not already claimed the credit for two consecutive years. Thus, if you already claimed the credit in 2014 and will do so for 2015, you aren’t eligible for it in 2016 even if you meet all of the conditions above.
5. Reporting Requirements
Whether or not you’re subject to the employer mandate, if you provide health coverage to employees in 2015, you have a new reporting requirement starting in 2016. By January 31, 2016, you’ll have to furnish to employees Form 1095-B, Health Coverage, as well as sending copies to the IRS by February 29, 2016 (March 31, 2016, if you transmit them electronically), to detail the 2015 coverage. Find details about this form in the instructions to the form  (PDF).
The tax rules are complex and growing more so each year. Work with a knowledgeable tax advisor so you get things right.
Health Insurance Payment  Photo via Shutterstock