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California Small Business Health Insurance Requirements

Although under the current ACA law, if your business has less than 50 FTE employees you are not required to offer health insurance to your employees, many small business do offer California small business health insurance plans regardless.  Offering a California health insurance plan to your employees will help to retain and attract quality employees. It will also create a healthier workforce which means less sick days for your business.


In addition, some California small businesses may qualify for a ACA Small business tax credit to offset your California Small business health insurance costs.  


How do I get a Small Business Tax Credit?

In California, small businesses may qualify for a business tax credit which could help you save on your employee health insurance coverage.  In order to be eligible for these tax credits through Covered California you must meet the following requirements:


  • Fewer than 25 FTE (full-time employees) for the tax year of coverage. (calculate fte)

  • Average employee wages paid must be less than $50,000 per employee and

  • Employer pays for at least 50% of the employee’s premium cost.


The maximum possible small business tax credit available is 50% of premium expenses and the max credit for tax-exempt small business is 35%.  In addition, to receive this California small business tax credit, the plan must be an insurance plan offered by Covered California.


Call us today to find out if you qualify for the California small business tax credit!


What if I don’t qualify for the small business tax credit, can I still take a  health insurance tax deduction?


The good news is yes, many California small businesses can deduct their health insurance premium expenses from the federal business taxes.  


Do I have to offer my employee coverage for their dependants?


In California, small business are not required to offer dependant coverage as the state regulatory level even if they offer health insurance coverage to their employees although certain health insurance carriers mandate this on their own contractually.   If you do not offer small business health insurance coverage to your employee’s dependant’s, and your health insurance carrier allows it, employees may purchase coverage for their dependants through Covered California and may be able to receive financial help paying for their premiums. If you do offer coverage to your employees for their dependant’s coverage, they become ineligible to receive financial help paying for their premium from Covered California.


Do I have to tell my employees about health insurance coverage options even if I don’t offer it?


Although you are not required by law to tell your employees that they have options for health insurance coverage, as a small business owner it is important for you to make this information available to your employees.  Small business employers should share with their employees that they may have options and access to guaranteed coverage through the individual marketplace, Covered California.


Some employees may also be eligible for financial help paying for their health insurance premiums if the health insurance plan offered by the employer is found to be unaffordable.

I have 50+ employees, do I have to provide small business health insurance in California?

Yes, the ACA mandates that if you have 50 or more full-time employees, you must provide “affordable”health insurance to your employees. If you do not offer “affordable” health insurance coverage to your full-time employees your company face a tax penalty.

Read more about the ACA Employer Mandate


If we are a large employer over 50 people, what are the penalties if we don’t offer insurance to  our employees?


Once you’ve carefully counted the amount of Full Time Equivalent employees there are a couple of different penalties depending on the situation.


Situation A:    Large Employer does not provide any coverage at all for their employees.  


Situation A Penalty:  Currently it’s the total number of all full time employees minus 30 * $2260.


So, if this company has 60 Full Time Employees offering no coverage pays= $67,800 penalty per year.  Ouch..


*this number is adjusting up yearly


Situation B:  Large Employer provides ‘Affordable Coverage’ on an ACA compliant plan, but fails the affordability test on 3 employees.


Coverage is considered ‘affordable’ if the employee pays less than 9.56% of their w2 income on the lowest cost available ACA compliant plan


Situation B Penalty:



Employer pays a penalty of $3390 ea. on those 3 employees only for the ones who enroll through the Marketplace or State Exchange and receive a subsidy tax credit


What about alternatives for Large Employers or ALE’s (applicable large employers where ACA mandate applies)  Is there any other path or relief?


In response to demand and relief from the worse of the two penalties certain companies have launched alternative plans called MEC’s.  MEC plans are not ACA compliant, but allow a Large Employer to avoid the most severe penalty scenario (A), while still exposing the company to the lesser penalty scenario (B) above.


What are MEC (minimum essential coverage) Plans?


MEC plans, or Minimum Essential Coverage plans give members certain benefits such as:


-preventative care

-primary care office visits (limited quantity typically)

-less expensive than ACA plans: might range between $50-$100 per month

-not adequate coverage for major medical conditions

Some larger California Small Businesses with 50 or more employees opt to offer this type plan to avoid the Employer mandate and provide their employees with this benefit.

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