How Does The New
Health Care Law (HR .33590) Affect Your Small Business
The Patient Protection and Affordable Care Act (HR.35.90) was signed
into law by President Obama on March 23, 2010. In addition to
bringing coverage to a greater percentage of the population this law
was intended to bring relief to small businesses. To determine
if that is the case we have to take a closer look at the individual
provisions of the law that affects small businesses.
First, a quick summary of the eight (8) provisions that affect small
businesses, then some analysis.
Business Tax Credits:
The bill includes a sliding scale tax credit for small
businesses. From 2011 to 2013, a temporary credit would be available for up to
35 percent of employer costs for employers who provide 50 percent of the cost
of a health plan. The credit is limited to firms with fewer than 25 workers
with wages up to $40,000. In 2014, the credit would be available only to firms
that purchase insurance through the exchange. The full credit would be available
to businesses with 10 or fewer workers whose average wages are less than
$20,000, and it would begin to phase out for employers with 25 workers with
average wages up to $40,000. The credit would equal 50 percent of total
premium cost for full-time employees. It would only be available to a firm for two
bill includes a provision expanding the ability of businesses to
offer incentives to
employees for participating in wellness activities and meeting
targets. The bill would codify the existing regulations and expand
allowed for meeting wellness targets to 30 percent (from 20 percent)
“Medicare AMT” Payroll Tax:
the Hospital Insurance (HI) payroll tax rate on wages in excess of
$200,000 for an individual and $250,000 for a married couple from
1.45 percent to
1.95 percent. The tax would be effective January 1, 2013. Since the
thresholds are not indexed for inflation, this new tax will hit more
each year as inflation drives up their wages.
taxpayer would no longer be able to deduct medical expenses that
exceed 7.5 percent of adjusted gross income. Instead, the income
threshold would be raised to 10 percent. Taxpayers 65 or older,
continue to use the current 7.5 percent threshold, but only through
2016. The tax would be effective January 1, 2013.
$2,500 Cap on
Contributions to a health Flexible Spending Arrangement (FSA) would be
limited to $2,500 per year. The limit is not indexed. The tax would be
effective January 1, 2011.
Businesses paying $600 or more during the year to corporate
providers of products and services would be required to file a
report with each provider and the IRS. Information reporting
already is required on payments for services to non-corporate
providers. The requirement would be effective January 1, 2012.
Elimination of Deduction for Expenses Attributable to Part D
Currently, the subsidy for an employer sponsoring a prescription
under Medicare Part D is excludable from income and expenses
related to the subsidies are deductible as a business expense. Under the
bill, the amount otherwise deductable for retiree prescription drug
expenses is reduced by the amount of the excludable subsidy. The
proposal would be effective January 1, 2011.
Employers with more than 200 employees must automatically
Enroll employees in health coverage.
As of today
more than 100 companies have applied to Health and Human Services (HHS)
for an exemption to the new Health Care law. The realization that
the new law will come at a high price to business is beginning to
set in. Already businesses are experiencing increase premiums.
This is obviously not good for business. If you’re lucky to have a
growing small enterprise (given the state of this economy) you may
be considering hiring new employees. If you hire new employees and
provide them with health care, you (the employer) will have to pay
at least 50% of their health care cost. You will get a 35%
deduction for two years then its back to normal. Deductions will
phase out the more employees you hire and the more you pay them.
You will have to buy health care from an Exchange setup by the
government for Small Businesses.
Also of note is the provision that
requires businesses to file an IRS Form 1099 on any transaction of
$600 or more. That means, for example, if you bought a computer
worth over $600 dollars you have to generate and file a Form 1099.
Think of how many times you made such transactions as a small
business. Now you have to generate the paperwork every time you
make such transactions.
See more ACA news.
PATIENT PROTECTION AND AFFORDABLE CARE ACT [otherwise known as
Universal Health Care]
By Owen Daniels