Obamacare: How Will It Affect Farmers?

David B. Ussery

Thursday, September 5th, 2013

The Affordable Care Act, known by most folks as Obamacare, will be in full swing on Jan. 1 and begin to affect small employers, including farmers.

As an employer, are you required to provide health insurance to your employees?

Employers with 50 or more full-time employees – or the equivalent of 50 full-timers – will have to offer affordable and adequate health insurance to employees beginning in 2015. Obamacare defines a full-time employee as one that works 30 hours each work week or an average of 130 hours per month. 

Many employers may think that they can get around paying for health coverage by cutting the hours of  full-time employees to less than 30 per week, but these employers shouldn’t act too quickly. The full-time equivalent clause of Obamacare means calculating the number is employees isn’t so simple.

For example, assume that John owns and operates a nursery where 40 full-time and 15 part-time employees work.  Each of the 15 part-time employees works 20 hours each week, so together they work 300 hours, which is equivalent to 10 full-time equivalent employees.  With this calculation, John employs a total of 50 employees and must offer health insurance. 

What happens if you choose not to provide health insurance coverage?

Employers who are required to offer health insurance must do so or pay a penalty beginning in 2015. As of now, there are two main penalties, and the cost can be substantial. 

The first penalty comes when an employer chooses not to offer any health insurance, though he is required to.  When this happens, the employer must pay a $2,000 penalty for each full-time employee if at least one employee receives government assistance for health coverage.  For example, Mack owns a meat processing plant that employs 64 full-time equivalent employees and decides to not offer health insurance.  In this case, Mack may be subject to a $68,000 penalty – the first 30 full-time employees are exempt from the penalty. 

The second penalty comes when an employers doesn’t offer adequate, affordable health coverage. If an employee turns to the government for help paying his share of the bill, the employer will be assessed a $3,000 penalty for each employee that receives a subsidy. For example, Mack decides to offer minimal health insurance to his 64 full-time employees, and seven of the 64 employees qualify and receive a subsidy for health insurance coverage.  Mack will be subject to a $21,000 penalty.

So what is adequate and affordable health care?

Insurance agents and others in the industry are scrambling to educate themselves and others on this complex topic, but in short, there are two standards:

* An employer must cover at least 60 percent of health care costs.

* An employee’s cost cannot exceed 9.5 percent of his household income. 

What if individuals decide not to get health coverage?

Employers are not the only ones who can be penalized. People who choose not to buy health insurance in 2014 may be fined $95 or 1% of their taxable income, whichever is greater.  By the time 2016 arrives, the penalty will increase to $695 for each adult or 2.5%, whichever is greater.

Are penalties paid by an employer due to Obamacare tax deductible?

Bottom line, no. The IRS specifically denies a deduction for fines or penalties paid to a government for violation of any law. Many will confuse this as a tax as it will be assessed and collected on income tax returns, but it is not a tax – it is a penalty.

Many small business owners have said they intend to pay the penalty rather than offer health insurance since the penalty would cost less. However, health insurance would be a deductible expense for the business and could qualify the business for a tax credit.

Will I be required to offer health insurance for my seasonal farm workers?

As with many other answers relating to Obamacare, it depends. The Affordable Care Act does provide a seasonal work exemption that may be the saving grace for some employers. This exemption allows businesses, like farmers, to employ 50 or more people but still not offer health insurance if those employees aren’t on the job for more than 120 days during a calendar year.  The 120 days do not have to be consecutive.  If you employee 50 or more employees for 121 days, you will be required to office health insurance.

How will owners of related companies be affected?

For purposes of determining whether or not an employer is required to offer health coverage, companies that share common owners are considered a single employer. 

Let’s assume that Dan owns and operates a farm, a supply store, a tractor dealership, and a cotton gin – needless to say, Dan is a very busy man.   On average, each entity employs 15 full-time employees.  For liability purposes, each venture is legally separate, but since all entities are owned by Dan, he employs an average of 60 full-time workers and is obligated to offer health insurance or pay the penalty. 

To sum up…

As you can see, Obamacare is complicated, and you may need the expertise of an accountant, lawyer or both to wade through all of the legalities. This isn’t a complete analysis of Obamacare.  Rather, it is a basic overview of how the law may affect employers in the near future.  Since the regulations of Obamacare are constantly changing, these answers may not be relevant in the coming months and years, but one thing is for certain, Obamacare will affect every American.

David B. Ussery, CPA is a staff accountant in the Tifton, Ga. office of Carr, Riggs & Ingram, LLC and can be reached at dussery@cricpa.com.  He regularly performs professional services for farmers such as tax planning, research, and tax preparation.