The Affordable Care Act’s excise tax and its effect on agricultural employers

Failure to Comply with Market Reforms could have potential negative ramifications to even Small Employers with less than 50 FTE’s for an Annual Monthly Average in the form of a $100-per-day per employee penalty.

Since the inception of the Affordable Care Act (ACA), there has been a great amount of discussion about the requirements for employers and what Applicable Large Employers (ALE) – defined as 50 or more FTE’s for an annual monthly average – are required to provide. However, the ACA is a very large piece of legislation that contains far-reaching regulations that cover not only ALE’s but may also affect small employers defined as having less than 50 FTE’s for an annual monthly average.

Unfortunately, a portion of the ACA known as the Failure to Comply with Market Reforms (I.R.C. 9801 – 9813) has not received the same amount of attention as parts of the ACA that affect Applicable Large Employers but can have profound ramifications on small employers. The Failure to Comply with Market Reforms establishes an excise tax of $100-per-day per employee penalty if a health benefit being offered does not meet one or more of a number of requirements.

In many cases farmers are unable to afford offering full-fledged health benefit plans to their employees due to farm profitability and cash-flow, but may try to be a good employer by offering some other form of health benefit compensation. It is these other health benefit compensations – regardless of how formal or informal they may be – that can get a small employer sideways with the Failure to Comply with Market Reforms piece of the ACA legislation.

Some questions to consider are: is the farm/employer providing healthcare coverage to all or just some employees? Does their coverage meet all essential benefits and affordability? Is the reimbursement being taxed as part of their income? These are many of the challenges that must be considered and discussed with the farms legal and tax advisors. A common example of what could be affected by the Failure to Comply with Market Reforms portion of the ACA legislation is when a farm employer has an informal agreement with some of their farm employees, for instance, if a small farm has six employees and reimburses them for their healthcare coverage premium or reimburses them for medical coverage. This situation can become even more complicated if they only provide this to a small number of their employees versus to all employees due to other regulations.

All farms should maintain a relationship and have regular communication with a good set of advisors which may include legal representatives, tax preparers (CPA’s, etc.), the local university Extension service and others. It is with this advisory team that a farm should discuss what is being done and its potential ramifications. With any type of benefit that could possibly be perceived as a health care benefit a small employer may open themselves up to a potential tax penalty liability. Each farm’s situation is unique and must be dealt with accordingly.

 Michigan State University Extension reminds you to always contact your trusted legal and tax advisors.

For further information please contact me at or visit the MSU Extension Farm Information Resource Management webpage

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