There’s plenty of debate about whether the new health care reform bill is good for America. Whatever your views, it looks like the Affordable Care Act – a massive piece of legislation passed by Congress in March – is here to stay.
The majority of Americans without health insurance are the owners or employees of small businesses. For many of these individuals, health insurance has been unaffordable for themselves, their families, and their employees.
But the new legislation is set to change that. It makes it less expensive to purchase insurance – and it provides tax credits for small business owners who do.
And, because the aim of the bill is to get the vast majority of Americans at least minimally covered, the Act imposes tax penalties on those who don’t purchase insurance.
If you own a small business or are a sole proprietor, read on for an overview of how the bill affects you.
What Do Small Businesses Get?
Cheaper Insurance through Health Exchanges. The Affordable Care Act sets up state-run Health Insurance Exchanges that allow individuals and small business owners to get the same discounted insurance rates larger corporations have been enjoying for years. This makes coverage much more affordable for these folks.
Tax Credits. The Act comes with $40 billion in tax credits for small businesses who offer health insurance coverage to their employees. The federal government expects that more than 60% of small employers – or 4 million firms – will be eligible for these incentives. These are meant to recover some of the companies’ cost of offering coverage.
Effective now, if your business employs 25 or fewer people who are making $50,000/year or less on average, you get up to 35% credit on health insurance premiums. The credit is based on a sliding scale, with smaller companies that have lower-paid workers receiving the largest credit.
In 2014, if you buy that insurance through a Health Care Exchange, the maximum credit rises to 50% for 2 years.
Tip: The tax credit cannot be claimed by small business owners themselves or self-employed individuals. However, those folks may be eligible for federal subsidies. See the guidelines below.
What If You’re Self-Employed?
Individuals who work for themselves can buy insurance on the health exchanges and also receive more affordable rates.
To help pay for the premiums, people whose annual income is up to four times the poverty level receive federal subsidies.
Tip: Individuals can make up to $44,000 and still qualify for subsidies to pay for their health care from health exchanges. A family of four can make up to $88,000.
Note: To help pay for health care reform, taxpayers in the highest tax bracket – those making $200,000 individually or $250,000 married – will see a rise in their Medicare taxes. Medicare Part A taxes will rise by .9%, and taxes on unearned income will increase by 3.8%. These changes take effect January 1, 2013.
The Coverage Mandate – Are You Affected?
Small businesses with 50 or fewer employees are not required to provide insurance to their employees under the new health care law.
However, larger companies with more than 50 full-time employees do need to provide insurance, beginning in 2014, or face tax penalties of $2,000 annually per worker above 30 workers.
Everyone Must Participate – or Face a Fine
If you don’t buy coverage, you’re faced with a tax penalty to the federal government, beginning in 2014. This fine starts fairly small, but by 2016, when it’s fully phased in, it’s more substantial. An insurance-less person would have to pony up whichever is greater: $695 for each uninsured family member, up to a maximum of $2,085; or 2.5 percent of household income.
Special Attention for Three Industries
Employers in three industries – tanning salons, construction, and restaurants – see these specific changes under health care reform:
Tanning Salons. In July 2010, a 10% sales tax was instituted on individuals using tanning salons. The revenue raised by this measure is meant to help pay for the costs of the Act.
Construction. In the construction industry, a higher percentage of companies must comply with the 2014 coverage mandate – those with just 5 or more employees.
Restaurants. Under the mandated insurance provision that goes into effect in 2014, two part-time workers equal one full-time worker.
Want to Know More? Give Us a Call
There’s a lot more to the Affordable Care Act than we’ve covered here – including the elimination of denial of coverage for pre-existing conditions and free preventive care. At a whopping 2,600 pages, this bill is complicated and far-reaching.
If you have any questions about how this bill affects your business and your tax obligations, please let us know. We’re here to help.
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