As a California business owner, you need to know if you’re required to offer health insurance to your employees under the Affordable Care Act and when a penalty could apply.
The information below is for informational purposes only and is based on the IRS Employer Shared Responsibility provisions in section 4980H of the Internal Revenue Code. Visit the IRS website or contact a tax professional for more information.
Under the Affordable Care Act, you are treated as an applicable large employer if, on average, during the previous calendar year, you had:
At least 50 full-time employees, or
A combination of full-time and part-time employees that equals 50 or more full-time equivalent employees.
If you are an applicable large employer:
You must offer health insurance that is affordable and provides minimum value to your full-time employees and their dependents, or
You may owe a penalty payment (also known as the employer shared responsibility or “employer mandate” penalty) to the IRS.
All types of employers — including tax‑exempt organizations and government entities — can be applicable large employers.
If you have fewer than 50 full‑time employees, including full-time equivalent employees, you’re not subject to the employer shared responsibility provisions or penalty payments to the penalty or the related IRS reporting requirements. Most businesses fall below this threshold.
Even though you’re not required to offer insurance, you can still:
Provide Affordable Care Act‑compliant health benefits to your employees through Covered California for Small Business, which serves employers with 100 or fewer full-time equivalent employees; and
Use IRS resources specifically designed for small employers to understand your options and any available tax provisions.
You’ll need to calculate your exact number of employees to find out if you’re required to offer them health insurance.
For employer-mandate purposes:
A full-time employee is someone you employ on average at least 30 hours per week.
To determine whether you are an applicable large employer, you must count both:
Your full-time employees, and
Your full-time equivalent employees, which are calculated from the hours of your part‑time employees.
You must total each employee’s hours of service to determine your number of full‑time employees and full-time equivalent employees. The IRS Employer Shared Responsibility page includes examples that walk through these calculations.
Use the Employer Shared Responsibility Provision Estimator to estimate how many full-time equivalent employees you have and whether you may be an applicable large employer.
The Affordable Care Act uses two similar but distinct terms:
Seasonal worker: Relevant when you are determining whether you are an applicable large employer. Seasonal workers perform labor or services on a seasonal basis (as defined by the U.S. Department of Labor), such as retail staff hired exclusively for the holiday season. You may apply a reasonable, good‑faith interpretation of this term.
Seasonal employee: Relevant when you use the look‑back measurement method to determine if a particular worker is treated as full time.
You should apply these definitions carefully when you calculate your number of full-time equivalent employees and decide whether you are an applicable large employer.
If you are an applicable large employer, you can either:
Offer affordable health insurance that provides minimum value to your full‑time employees and their dependents, or
Potentially owe a penalty (employer shared responsibility payment) to the IRS.
You may owe one of two possible penalty payments (but never both at the same time). In general, you could owe a penalty if:
You offer health insurance to all or at least 95 percent of your full‑time employees, but at least one full‑time employee receives financial help (a premium tax credit) to help pay for their insurance through a health insurance marketplace like Covered California — for example, because that employee was not actually offered insurance, or your offer was not affordable or didn’t provide minimum value; or
You don’t offer health insurance, or you offer insurance to fewer than 95 percent of your full‑time employees and their dependents, and at least one full‑time employee receives financial help (a premium tax credit) through a marketplace like Covered California.
You don’t automatically owe a penalty payment just because some or all of your employees buy insurance through Covered California or have Medicare or Medi‑Cal. You only become liable if at least one full‑time employee receives a premium tax credit (financial help) for health insurance through a marketplace like Covered California.
In general, a full‑time employee isn’t eligible for financial help (a premium tax credit) through Covered California if you offer that employee health insurance that is affordable and provides minimum value, even if the employee chooses to decline your offer and enrolls in health insurance through Covered California, Medicare or Medi‑Cal instead.
For more about how payments are calculated and when they apply, visit the IRS Employer Shared Responsibility Provisions page.
For employer shared responsibility purposes, a dependent is your employee’s child under age 26, including a child who has been legally adopted or placed for adoption.
Spouses are not considered dependents, and neither are stepchildren or foster children.
As an applicable large employer, you must:
Offer health insurance that is affordable and provides minimum value to your full‑time employees, and
Offer health insurance to their dependents (as defined above).
However, the Affordable Care Act does not require you to pay for dependents’ premiums. Only the offer of dependent coverage is mandated. You may be subject to a penalty if you fail to offer health insurance and a full‑time employee receives a tax subsidy through a health insurance marketplace like Covered California.
Because a spouse is not a dependent for these rules:
You’re not subject to a penalty payment solely because you don’t offer insurance to spouses or because spouses purchase insurance through Covered California or enroll in Medicare or Medi‑Cal.
You’re only liable for a penalty payment if at least one full‑time employee (not a spouse) receives a premium tax credit.
If you offer health insurance that is affordable and provides minimum value to a full‑time employee’s spouse, that spouse will not be eligible for a premium tax credit.
The IRS has issued detailed guidance on how certain employer health arrangements interact with Affordable Care Act market reforms:
IRS Notice 2013‑54 explains rules for employee assistance programs (EAPs) and confirms that section 125(f)(3) prohibits using pre‑tax employee contributions in a cafeteria plan to buy coverage through a health insurance marketplace like Covered California.
The IRS also provides guidance on health reimbursement arrangements (HRAs), health flexible spending arrangements (FSAs), and certain other employer healthcare arrangements under the Affordable Care Act market reforms.
You should review these IRS materials or talk with your tax advisor or benefits consultant before setting up or changing these types of plans.
Visit these pages on the IRS website for the latest information on the requirements for small businesses under the Affordable Care Act.
Employer Shared Responsibility Provisions: Access guidance, examples and FAQs on the employer mandate and related payments.
Information for Small Employers: Information tailored to employers with fewer than 50 full‑time employees (including full-time employees).
Applicable Large Employer Information Center: Central hub for applicable large employer‑specific Affordable Care Act information and tools.
To help you understand your responsibilities and potential penalties, the IRS offers tools designed for employers like you, including:
Employer Shared Responsibility Provision Estimator (includes a full-time equivalent employee calculator): Estimate how many full-time equivalent employees you have and whether you’re an applicable large employer.
Affordable Care Act Estimator Tools for Individuals and Employers: Find additional calculators and decision support for Affordable Care Act requirements.
Affordable Care Act Employer Shared Responsibility Webinars: Access on‑demand IRS webinars that walk through the employer shared responsibility rules and reporting steps.
Get a quote and enroll your employees in Affordable Care Act-compliant insurance through Covered California for Small Business. You can:
Explore your plan options and see whether your company is eligible.
Work with a Licensed Insurance Agent or plan representative.
Contact CCSB: Talk to one of our representatives, send us an email or find an agent to work with.
New customers: (844) 332‑8384
Existing customers: (855) 777‑6782 (Monday–Friday, 8 a.m. to 5 p.m.; closed Saturday and Sunday)
The IRS and the state of California provide directories you can use to find qualified preparers:
Directory of Federal Tax Return Preparers: Search for tax return preparers near you and see their credentials. This directory includes only preparers with a Preparer Tax Identification Number (PTIN) who hold certain professional credentials or have completed the IRS Annual Filing Season Program.
Directory of Tax Preparers Registered With the California Tax Education Council (CTEC): Find people who prepare federal or state tax returns in California, have completed required education, maintain at least a $5,000 tax preparer bond and are registered with CTEC.
