The New York Times Blog: Looking to the Affordable Care Act for Help
By Paul Downs; New York Times "You're the Boss" Blog
“In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (‘F.T.E.’s) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per F.T.E., and (3) the employer must pay the premiums under a ‘qualifying arrangement’ described in Q/A-7.”
Hmmm. This might not be so simple. Let’s take these one step at a time:
How many full time employees do I have? I ended the year with 12 on the payroll, including myself, but I started the year with eight. So here’s the guideline: “The number of an employer’s F.T.E.’s is determined by dividing (1) the total hours of service for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by (2) 2,080.” This raises a question: Do I include myself? The answer is no:
“A sole proprietor, a partner in a partnership, a shareholder owning more than 2 percent of an S corporation, and any owner of more than 5 percent of other businesses are not considered employees for purposes of the credit. Thus, the wages or hours of these business owners and partners are not counted in determining either the number of F.T.E.’s or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.”
O.K., that’s clear. I don’t count. And if I had any family on the payroll, they wouldn’t either. As usual, the guy who pays the bills is excluded from any tax break for health insurance.
On to the employees. They get personal days and holidays and overtime, and the guys who have been working all year have well more than 2,080 hours each. But the hours exceeding 2,080 won’t count toward the total, as we saw. What about the others? There’s a large clump of verbiage in section 16 of the I.R.S. document that boils down to this: If the employee worked or was paid for less than 2,080 hours a year (including vacation and holidays), add the actual hours to the total. If salaried, add 40 hours for each week worked or paid for. If it’s an hourly worker, and you paid for more than 2,080 hours, just add 2,080. Then divide all of that by 2,080 to get your F.T.E.’s. And don’t forget to round down to the next whole number. That’s right: 4.99 F.T.E.’s is rounded down to 4. Which might help you if you are trying to scrape under the 25 F.T.E. limit, and might hurt you when you calculate average wages.
I paid for 21,168 hours of work in 2010, including overtime, personal days and holidays. When I subtract hours in excess of 2,080 per employee, that leaves me with a total of 19,008. Dividing by 2,080, I get 9.13 F.T.E.’s. Round that down to 9. Looks like I’m under the 25 limit. So far, so good.
On to the average wage calculation. What’s included? The I.R.S. says:
“The amount of average annual wages is determined by first dividing (1) the total wages paid by the employer during the employer’s tax year to employees who perform services for the employer during the tax year by (2) the number of the employer’s F.T.E.’s for the year, as calculated under Q/A-16.”
Uh oh. The total wages will include what I paid for all of the overtime, holidays and personal days, even if that exceeds 2,080 hours. Since many of my highest-paid shop guys work the most hours, that means the average is going to be bumped way, way up. I paid $451,662.50 in wages and salaries. Divide that by 9 F.T.E.’s and I get $50,184.72 per employee, which is just over the $50,000 per F.T.E. limit to qualify for the tax credit. I’m cooked.
The Affordable Care Act will not help me. I will have to deal with the burden of health insurance costs on my own. Some further thoughts:
I’m curious if anyone else has done this calculation — and what you found for your own company.
Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.