Understanding When to Offer Health Coverage
When should your company start offering health benefits for employees in the United States?
Under the Affordable Care Act (ACA), providing health insurance isn’t just an optional perk, it’s a compliance requirement for many employers.
Whether you run a growing startup or a large organization, knowing when to start employee health coverage is critical to staying compliant and avoiding IRS penalties.
1. Federal Rules (Affordable Care Act - ACA)
If your business has 50 or more full-time employees, you must offer health insurance under the Affordable Care Act (ACA).
Coverage must start within 90 days of an employee’s hire date and must cover at least 60% of healthcare costs.
Employers who fail to offer coverage may face IRS penalties under the Employer Shared Responsibility Provision.
2. Small Employers and Tax Credits
Businesses with fewer than 50 full-time employees are not required to offer health insurance.
However, small employers can qualify for the Small Business Health Care Tax Credit if they:
- Have fewer than 25 full-time employees
- Pay average annual wages under $62,000 (as of 2025)
- Contribute at least 50% of employee premiums
- Purchase coverage through the SHOP Marketplace
The credit can cover up to 50% of premiums (35% for nonprofits), helping small businesses save on health insurance costs.
3. State-Specific Rules
Some states have their own requirements for employer health coverage.
For example, California, New York, Massachusetts, and Vermont have additional mandates or reporting rules.
Even if you’re a small business, check your state insurance laws to stay compliant.
4. Best Practices
- Offer benefits within 30 - 90 days of hire (60 days is common).
- Confirm if part-time employees are covered under state law.
- Keep records of all offers and coverage for compliance.
- Review your headcount yearly to check ACA eligibility.
Summary
- 50 or more employees: Must offer affordable health coverage within 90 days.
- Under 50 employees: Not required but can get tax credits for offering coverage.
- Some states: May have extra rules, always verify.
Conclusion
Whether your team is big or small, offering health benefits for employees supports compliance and retention.
Large employers must meet ACA deadlines, and small businesses can take advantage of SHOP Marketplace tax credits.
Need help understanding your coverage obligations or claiming tax credits?
FinStackk can guide you through ACA rules and state-specific compliance with ease.