Beginning in 2014, businesses with more than 50 full-time employees will be required to provide health insurance coverage or face a penalty, as the federal health-care reform legislation continues to be implemented. Some businesses already offering health insurance may also face a penalty if the coverage does not meet certain thresholds outlined in the law.

How the penalties may apply to business owners

*The total employer fine cannot exceed $2,000 per full -time employee based on the total amount of full-time employees, minus 30.

The following examples illustrate how the penalties would be calculated:

Example: ABC Manufacturing has 100 full-time employees and provides no insurance coverage.

The penalty would be assessed on the total number of full-time employees (100) minus 30 = 70 employees.

70 employees x $2,000 penalty per employee = $140,000

Example: XYZ Services with 200 employees provides insurance coverage but it does not meet the minimum standards as defined by the law.

Of those 200 employees, 30 decide to opt out of the employer-provided coverage and receive federal tax credits to obtain health insurance through a newly established health-care exchange program.

30 employees x $3,000 penalty per employee = $90,000

Tax credits for smaller businesses
The federal government is providing tax credits for smaller businesses to offset the cost of providing health insurance coverage. These businesses are defined as having 25 employees or fewer with average annual wages below $50,000. For 2013, the maximum tax credit is 35% of total premiums. This level increases to 50% in 2014. For more information, see the Internal Revenue Service.

Many business owners may need to make decisions about providing health insurance coverage to employees or reviewing where their current health insurance benefits stand relative to the law. The insurance mandate is an opportunity to discuss with current or potential clients who own businesses. Financial advisors may also want to network with local tax professionals and benefits consultants who have knowledge about these provisions and how they may affect business owners.

For more information on the health-care reform law, read “Health-care reform and its impact on investors.”