For farm employers: Provide health insurance, pay penalties, or both?
© Copyright Agri-Pulse Communications, Inc.
WASHINGTON, Sept. 17, 2014 - The health-insurance reprieve for many farmers who employee others is about to end.
By Jan. 1, 2015, with some exceptions, farming operations with 100 or more full-time employees will be required to provide their employees with affordable health insurance or pay hefty penalties. On Jan. 1, 2016, the federal Affordable Care Act (ACA) mandate will also cover farming operations with 50 or more employees. And thanks to IRS consolidation rules, the 50-employee trigger may apply to farms with far fewer employees.
Despite the twice-delayed timetable for the ACA employer mandates to take effect, exactly what comes next remains clouded by legal and political uncertainty.
Legally, July's conflicting court rulings on the new federal health insurance law mean that the challenge to federal health exchange subsidies could end up in the Supreme Court. Depending on how the full D.C. Circuit Court of Appeals rules in December on federal premium subsidies, the Supreme Court could throw out the subsidies as illegal. Disallowing those subsidies could in turn remove the basis for fining employers who decide not to provide health insurance.
On the political side, consider Ken Selzer, the Republican candidate for insurance commissioner in Kansas. He opposes the ACA or Obamacare, charging that federal healthcare mandates “raise costs, kill jobs, and hurt our families.” He says that if elected in November, how he handles the ACA will depend on the national election results.
If Democrats retain their U.S. Senate majority, Selzer says his Kansas agency would do the minimum necessary to operate the federal health insurance program. But if the GOP takes over the Senate and maintains its U.S. House majority, then Selzer plans to support whatever the Republicans achieve at the national level to delay or dismantle federal health insurance mandates. As one of his top policy goals, Selzer lists “fighting unnecessary and burdensome laws and regulations such as Obamacare.”
There's also the technical side. The IRS still hasn't finalized all the rules and forms necessary for employers who decide to provide health insurance for their employees.
Faced with such uncertainties, farmers could be tempted to sit on the sidelines.
Attorney Marc Lovell, assistant director for Tax Education and Outreach for the University of Illinois at Urbana-Champaign, advises otherwise. He warns that “Farmers with employees should consult a tax adviser who is very familiar with these ACA rules to obtain the necessary advice if they haven't already done so. This will ensure enough time to properly develop and implement plans to address the major impact the ACA will have on a farm business.” Click here to read more of Lovell's advice.
Lovell tells Agri-Pulse that even farmers convinced they are far below the 50-employee trigger for the ACA employer mandate need expert advice. He points out that if a farmer or farm family has an ownership interest in several different operations, as is common in the ag sector, in most cases standard IRS tax rules “will require all of those entities to be treated as one large operation for purposes of counting employees.”
Lovell says for a farmer who might have only two employees for his corn and bean acreage, but another 48 working to pick and process vegetables, there still might be cause for concern. “Because there is common ownership, that farmer may have to consider all of those businesses as one.” So whether you're part owner of a grain elevator, an ethanol plant, or the local bank, prepare to add up all the employees. Lovell says that's “another reason to consult your tax adviser who can address your particular situation.”
Based on how wide the employer-mandate net may be, Lovell calculates that “at the very least, tens of thousands of farm employers across the United States are definitely going to be affected.”
Lovell also highlights pitfalls related to the ACA requirement that coverage provided to employees must be comprehensive and affordable. Farmers may have existing plans which can be grandfathered. But he warns that farmers “need expert confirmation that their plan meets the qualification requirements so they don't get hit with a penalty. . . There apparently still are a lot of plans out there which do not meet the ACA requirements, so you've really got to step carefully.” Otherwise, a farmer could provide coverage for a full year only to end the year paying a hefty federal penalty because the coverage didn't qualify. Lovell adds that even if a plan qualifies for grandfathering, the employer will be saddled with “a huge amount of additional record keeping.”
Farmers need to meet with both a tax adviser and an insurance broker ASAP, Lovell advises, because Jan. 1 is coming up fast and because even a relatively small farming operation could be considered to have more than 50 or 100 employees, thanks to the IRS consolidation rules for linked businesses.
Lovell says farmers who decide against offering coverage also need expert advice, to know how much they would pay each year in penalties. He points out that the ACA penalties are large and are not tax deductible by the farm employer. One penalty is $2,000 per year times the employee count minus 30 for not offering coverage. For an employer offering coverage, there is a $3,000 per year penalty for each employee who qualifies for an ACA subsidy because the employer's coverage does not meet minimum requirements.
Lovell's final advice is that “as much as we might not like what the law does, it's the law of the land we've got to deal with it.”
Read the Affordable Care Act: www.hhs.gov/healthcare/rights/law
IRS Affordable Care Act Tax Provisions for Employers: www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-for-Employers
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