AG Producers and the Affordable Care Act

Published in the August 2014 Issue Published online: Aug 10, 2014 Tim Anderson, CPA, and Daniel Packard, CPA, CFE
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On March 23, 2010, President Obama signed into law the Affordable Care Act.

The law puts in place comprehensive health insurance reform designed to be carried out in phases over the next several years. Many ag producers have been intent on learning what the Affordable Care Act requires them to do. Prior to enacting the Affordable Care Act (ACA), studies identified farm families as a segment of the population seriously burdened by healthcare costs. Unfortunately, the ACA makes no distinction between agricultural enterprises and non-agricultural enterprises for purposes of the law. As of January 1, 2014, every individual in the United States is required to have health insurance coverage under the ACA’s individual responsibility provision or be subject to penalties. The large employer (50 to 100 employees) mandate to furnish health insurance to employees has been postponed to 2016.

The primary components of the Affordable Care Act deal with the availability, affordability and quality of health insurance provided by employers.

As the size of your farming operation increases, so does your need to consider the implications of the Affordable Care Act. Like other small businesses trying to attract and retain good employees, farm operators may offer healthcare insurance to employees. A requirement to provide health insurance arises when an employer has more than 50 full-time equivalents (FTEs). Coverage must meet minimum thresholds of affordability based on the employee’s household income, as well as provide minimum coverage as defined by the ACA.

Ag producers are classified as a “large employer” when 50 full-time equivalents are employed. Under the ACA, employees that work an average of at least 30 hours per week or 130 total monthly hours are considered full-time. When determining insurance coverage needs, ag producers should take particular heed to employee classifications:

Seasonal Employees. The ACA provides limited relief to agricultural employers who temporarily increase the number of their employees to accommodate for seasonal work. This exception only applies if your seasonal employees are in service for 120 days or fewer and the increase is seasonal in nature. Should your seasonal employees work more than 120 days, they would then be counted as full-time during the months worked and could force the hand of a company that is near 50 FTEs.

Keeping track of your employees’ hours will be essential to avoiding the bump up to 50 FTEs. Through 2014, employers are permitted to use a reasonable, good faith interpretation of what a seasonal employee is without particular regard to the number of days he or she works.

H2-A Workers. Individuals employed on your farm or ranch that have an H2-A foreign agricultural worker permit are to be treated like other employees or seasonal workers. Undocumented workers are not included in your full-time count.

Farm Labor Contractors. Typically, farm contractors are required to provide coverage for their employees if they meet the FTE threshold. An ag producer would not be responsible to count contract labor hours.

Companies Under Common Ownership. For employers who own multiple entities, the IRS aggregation rules governing controlled groups apply to the ACA employer determination.

This ruling states that all employees of businesses which are under common control are treated as employed by a single employer.

In addition to healthcare changes, the ACA also contains a number of tax law changes that could impact ag producers.

Effective January 1, 2013, the IRS imposed an additional 3.8 percent tax on passive sources of income, including:

• Gains from selling investment assets, such as gains from stocks and securities and real estate gains.

• Capital gain distributions from mutual funds.

• Income from dividends, interest, royalties and annuities.

• Income and gains from passive business activities and income from rents.

• Gains from selling passive partnership interests and S corporation stock.

The Affordable Care Act has been a moving target. In 2014, expect to see a continued emphasis placed on improving preventative health coverage, prohibiting discrimination due to preexisting conditions or gender, eliminating the annual limits on insurance coverage, and improving the small business tax credit for participating employers.