Does your organization use independent contractors?
Does your medical plan cover interns? Depending on your answers to these questions, your company could face a potential liability accrual for excise taxes arising from the Affordable Care Act (ACA) under FASB Accounting Standards Codification Topic 450, Contingencies (previously FAS 5).
For the technology, consulting, media and entertainment industries (which have traditionally boosted their workforce with interns, temporary employees or contract employees), assessing ACA compliance risk can be especially tricky. Companies that hired independent contractors in place of regular employees, typically as a result of hiring freezes during the economic downturn, have a similar challenge.
Considering the entire workforce composition according to definitions set by the ACA is critical to any risk assessment.
The well-publicized employer mandate requires many businesses to provide health insurance or pay an excise tax penalty. This penalty is difficult to assess, especially when contingent workers are involved, and it can be triggered even if a company offers health insurance to most of its employees.
As CPAs, controllers or finance directors, you can take a critical step toward mitigating risk exposure. Let's consider some of the most common ACA myths and how you can help minimize the tax penalty risk.
Myth 1: Employers offering health care coverage to employees will not incur ACA penalties.
While most employers are aware of the ACA mandate, they may not realize that simply offering health insurance does not necessarily satisfy the mandate, which applies to companies with at least 100 employees in 2015 and 50 employees thereafter. (Note: This is as of press time. While the timeline for implementing some of the law's provisions has changed, the provisions themselves have not.)
An employer must either offer health insurance to its full-time employees and dependents or potentially face an excise tax. The law defines a full-time employee as one who works at least 30 hours per week.
The good news is that starting in January 2016, the Treasury will allow a 5 percent error rate. That is, an employer must offer coverage to 95 percent of its full-time employees. (For the 2015 calendar year, employers must offer coverage to at least 70 percent of its full-time employees.)
The bad news is that this margin of grace is absolute; so an employer who misses the 5 percent threshold (30 percent in 2015) by even one...