Health Care Law, Payroll, and Your Bottom Line
By: Gardiner Thomsen CPAs | email
The new health care law that president Obama signed into effect this year carries with it several new financial requirements, most of which will significantly effect small business owners. While certain tax breaks are also included in the legislation, business owners still need to be aware of the changes they will have to make in their business policies in order to offset the costs associated with the new law. Listed here is a summary of some of the measures in the new legislation that we consider to have the greatest impact on you and your business.
- Businesses that purchase more than $600 of goods and/or services from any one person or business in a fiscal year must send a Form 1099 to that person or business.
- Employers with more than 50 full-time (30+ hrs/wk) employees will be required to provide a minimum portion of the cost of health insurance premiums for each employee, either through the employers health plan or a voucher that the employee can use to purchase health insurance elsewhere. Noncompliance may result in a fine of $2000 per employee. Even if the employer provides coverage and contributes to the employee’s premium, if any employee receives a premium assistance tax credit, the employer will also have to pay the fine.
- All insurance plans will be required to allow coverage of dependents up to the age of 26.
- All business owners will be subject to new expanded federal income tax requirements on payments of fixed or determinable income or compensation.
- Contributions to savings accounts designed specifically to help pay for medical expenses with pre-tax dollars will be capped at $2500, annually indexed for inflation.
- An additional .9% Medicare tax on earned income and 3.8% Medicare contribution on certain unearned income will apply for individuals with an AGI over $200,000 ($250,000 for joint filers).
- The threshold for deducting unreimbursed medical expenses will increase from 7.5% to 10% of AGI, but will be waived for those ages 65 and older through 2016.
In addition to these measures, which will go into effect over the next 4 years, numerous other mandates will indirectly cause a substantial impact on the financial position of small businesses, mainly by increasing costs related to health care that employers are required to provide. Excise taxes are soon to be imposed on the sale of medical devices, drug makers, and the insurance industry; Medicare coverage (and expenses) will be expanded; private health insurance will be commoditized; and penalties of up to 2.5% of taxable income will be imposed on individuals who don’t carry coverage.
This article only summarizes some of the key implications that health care reform will have on your business. To learn more about how this will impact your business in the immediate future, as well as over the next four years and beyond, please give us a call. We are prepared to help you develop a strategy to efficiently manage your business costs and maximize your tax savings.
