“If I had a world of my own, everything would be nonsense. Nothing would be what it is because everything would be what it isn’t. And contrary-wise; what it is it wouldn’t be, and what it wouldn’t be, it would. You see?” Alice from Alice in Wonderland.
Welcome to Alice’s world. The Patient Protection and Affordable Care Act (aka Obamacare), has rekindled the debate of its essence. However, regardless of your political views on the law, here are some facts that a small business needs to know. A majority of these tax points come from Supreme Court Upholds Health Care Act by Schreiber and Nevus written in the Journal of Accountancy article.
- Premium-assistance credit (Sec. 36B): Some individuals can take advantage of refundable tax credits to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through a state health benefit exchange. (Effective 2014.)
- Small business tax credit (Sec. 45R): Just like last year, small businesses—defined as businesses with 25 or fewer employees and average annual wages of $50,000 or less—would be eligible for a credit of up to 50% of non-elective contributions the business makes on behalf of their employees for insurance premiums. (Effective 2010.)
- Medical care itemized deduction threshold (Sec. 213): Unfortunately the threshold for the itemized deduction for unreimbursed medical expenses is increased from 7.5% of adjusted gross income (AGI) to 10% of AGI for regular income tax purposes. This makes any medical deduction almost impossible to deduct unless catastrophic. Try opening a flexible benefit plan or incorporate (Effective 2013 generally, 2017 for certain taxpayers.)
- Additional hospital insurance tax on high-income taxpayers (Sec. 3101): Employee portion of the Medicare hospital insurance tax part of FICA is increased by 0.9% on wages that exceed a threshold amount. (Effective 2013.)
- Employer responsibility (Sec. 4980H): An “applicable large employer” that does not offer coverage for all its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%, is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee. (Effective 2014.)
- Excise tax on high-cost employer plans (Sec. 4980I): Excise tax on coverage providers if the aggregate value of employer-sponsored health insurance coverage for an employee (including, for purposes of the provision, any former employee, surviving spouse, and any other primary insured individual) exceeds a threshold amount. (Effective 2018.)
- Tax on health savings account (HSA) distributions (Sec. 223): Additional tax on distributions from an HSA or an Archer medical savings account (MSA) that are not used for qualified medical expenses is increased to 20% of the disbursed amount. Be careful what you put into these accounts (Effective 2011.)
- Health flexible spending arrangements (FSAs) (Sec. 125(i)): Maximum amount available for reimbursement of incurred medical expenses under a health FSA for a plan year (or other 12-month coverage period) must not exceed $2,500. This is up from $5,000, and definitely will hurt employees (Effective 2013.)
- SIMPLE cafeteria plans for small business (Sec. 125): An eligible small employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for specified qualified benefits offered under a cafeteria plan. (Effective 2011.)
- Information reporting (Sec. 6051(a)(14)): Requires employers to disclose on each employee’s annual Form W-2 the value of the employee’s health insurance coverage sponsored by the employer. (Effective 2012.)
Small businesses must be very vigilant over the next two years to verify that they are eligible for the credit and that they are conforming to the law in very respect.