Regardless of where you stand on the issue or who you voted for there is a very real chance of the new healthcare laws making your business headaches worse. As a bookkeeping and accounting firm we are going to be helping our clients deal with the financial fallout of the measures, whatever they turn out to be, but there is more to it than that.
The following article breaks down some of the basics you will need to know, but of course this may change as time goes on and the laws are modified, repealed or otherwise adjusted as they get closer to becoming a reality.
So the bottom line here is that you can get some questions answered but before you make any drastic plans wait and see what the final word is as it may be significantly different than what we are starting with here.
As a small-business owner, you may find your head spinning when trying to figure out what the Patient Protection and Affordable Care Act may bring.
How the new provisions impact you, if at all, depends on the outcome of a high-profile Supreme Court case and potentially on the results of the 2012 election.
The law’s key provisions are set to take effect roughly two years from now, on January 1, 2014. Here’s a look at how you may be affected:
Q. What if I am a one-person business?
A. The impact for sole-proprietors and others with no employees will be much like the impact on individuals.
For people in this group, the crux of the 2014 roll-out is the individual mandate, which requires all U.S. citizens and legal residents to have health coverage or pay a penalty.
You, as a one-person business, would buy insurance through your state’s benefits exchange that will roll out in 2014.
There are some exemptions, however, such as those from certain religious backgrounds and those who are eligible for the so-called “hardship exemption” if the cost of the annual premium exceeds 8% of household income.
There are penalties intended to ensure compliance. The top penalty for individuals, once fully phased in, for not having insurance is $695 or 2.5% of income – whichever is greater.
Q. I have employees or may be hiring. What provisions impact me?
A. If you have employees, the health-care provisions are a bit more complicated.
Let’s start with what’s on the table under the law today. Since last year, firms with fewer than 25 full-time equivalent employees have been eligible for a tax break if you cover at least half the cost of health insurance. (Full-time equivalent is the number of employees on full-time schedules plus the number of employees on part-time schedules, converted to a full-time basis.)
But only if you have fewer than 10 full-time equivalent employees and average salaries of $25,000 or less is your firm eligible for the full credit. Today, that full credit is 35% of your contribution toward an employee’s insurance premium. As your firm size and average wage amount goes up, the tax credit goes down. And once your business hits 25 full-time equivalent employees or $50,000 in average salaries, the credit is completely phased out. The Internal Revenue Service has full details here.
Q. What happens to the tax credits going forward?
A. In 2014, the state-based Small Business Health Options Program Exchanges will be open to small firms. And getting insurance through those exchanges could bump the maximum tax credit to 50% of your contribution, up from the current 35%.
But the tax credits won’t last. The credit is only available for a maximum of five years and only two years once the exchanges are up and running.
Q. Will I have to provide health insurance to my employees in 2014?
A. No firm is mandated to provide insurance, but in 2014, only the smallest businesses will be exempt from penalties if they don’t.
Q. What are the penalties and under what circumstances would I be exempt?
A. Once your firm reaches 50 full-time equivalent employees, a penalty will kick in if you fail to provide coverage for employees who average 30 or more hours a week in a given month. The penalty is $2,000 for each full-time employee in excess of 30 full-time employees. There are no penalties if part-time employees are not offered coverage.
A key factor in calculating the penalty is that the equation isn’t based on full-time equivalents, but rather on actual full-time employees. That means some businesses that are subject to the penalty may end up owing nothing.
Here’s a basic example: Say your firm has 25 full-time employees and 50 half-time employees that, combined, equal 25 full-time equivalents. Your firm, in effect, has 50 full-time equivalents and would be subject to the penalty if you don’t provide health-care coverage. However, your penalty cost likely would be zero because the $2,000 tally starts at the 31st full-time employee and you only have 25 full-time employees.
Q. What should I know about getting insurance for my employees?
A. You can’t just buy any old insurance to avoid the penalty. You have to provide so-called “minimum essential” and “affordable” coverage. Minimum essential coverage means covering 60% of the actuarial value of the cost of the benefits. And affordable means the premium for the coverage of the individual employee cannot exceed 9.5% of the employee’s household income.
If the coverage you offer is unaffordable, qualifying employees can get subsidized coverage through the tax credit on the state exchanges. In such a case, you will have to pay the lesser of $3,000 per subsidized full-time employee, or the $2,000-per-employee penalty after the first 30 full-time employees.