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Small Business Employee Benefits and HR Blog

Employer Tax Penalty for Not Offering Health Insurance - Examples

Starting in 2014, businesses with more than 50 "Full-Time-Equivalent" employees will be required to either offer health insurance coverage or else pay a tax penalty based on full-time employees. The vast majority of U.S. businesses are not subject to this penalty. Here's an easy way to calculate the approximate penalty (if applicable) for any business not offering health insurance coverage.

You need the following variables to calculate the tax penalty:easy calculation of business tax penalty

  1. # of Full-Time Employees. This is the number of employees working 30 or more hours per week.

  2. Full-Time-Equivalent of Part-Time Employees. This is the total number of hours worked by part-time employees divided by 120.

  3. Total Full-Time-Equivalent (FTE) Employees. This is #1 plus #2.

Then, Calculate the Penalty Based on 3 Groups

If at least one employee receives federal subsidies due to the purchase of health insurance through an exchange, an employer may be required to pay a monthly penalty based on the number of Full-Time Employees.

VERY IMPORTANT: When calculating the amount of the penalty, the employer receives a credit of 30 Full-Time Employees. (For example, a company with 50 Full-Time Employees only has to consider 20 employees for purposes of the penalty).

Group 1: Businesses Employing Less than 50 Total Employees

If a business employs less than 50 total employees (whether Part-Time or Full-Time), then the business is not subject to the tax penalty.

Here are three real-life examples:

  1. A business that employs 10 Full-Time Employees and 0 Part-time Employees is not subject to the tax penalty.

  2. A business that employs 20 Full-Time Employees and 29 Part-time Employees is not subject to the tax penalty.

  3. A business that employs 49 Full-Time Employees and 0 Part-time Employees is not subject to the tax penalty.

Group 2: Businesses Employing Less Than 31 Full-Time Employees

If a business employs less than 31 Full-Time Employees, then the business does not pay a tax penalty for not offering coverage. This is due to the 30 employee credit (see "VERY IMPORTANT" above).

Here are three real-life examples:

  1. A business that employs 10 Full-Time Employees and 100 Part-Time Employees does not pay a tax penalty.

  2. A business that employs 20 Full-Time Employees and 500 Part-Time Employees does not pay a tax penalty.

  3. A business that employs 30 Full-Time Employees and 1000 Part-Time Employees does not pay a tax penalty.

Group 3: Businesses Employing 31 or More Full-Time Employees and 50+ Total Full-Time-Equivalent Employees

If a business employs 31 or more Full-Time employees and 50 or more Full-Time-Equivalent (FTE) Employees, then the employer is subject to penalty if atleast one employee receives a tax subsidy in the Individual Health Insurance Exchange.  An easy way to calculate the penalty is to subtract 30 (the credit) from the # of Full-Time Employees and multiply the result by $2,000. 

Here are three real-life examples*:

  1. A business that employs 31 Full-Time Employees and 50 Full-Time-Equivalent Employees pays a tax penalty of $2,000 per year (1 * $2,000).

  2. A business that employs 50 Full-Time Employees and 100 Full-Time-Equivalent Employees pays a tax penalty of $40,000 per year (20 * $2,000).

  3. A business that employs 500 Full-Time Employees and 5000 Full-Time-Equivalent Employees pays a tax penalty of $940,000 per year (470 * $2,000).

*All examples assume at least one employee is receiving a tax subsidy in the individual health insurance exchange.


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