Lawmakers are attempting to repeal it, businesses are suing to prevent its implementation and local governments and unions continue their efforts to be exempted from the massive and controversial “Affordable Care Act” (ACA), the health care “reforms” enacted in 2010. More recently, the Obama Administration announced that it is postponing for a full year, until 2015, the Act’s“Employer Mandate,” the requirement that employers with more than 50 employees
provide health insurance to their employees or face stiff penalties. Fortunately, while everyone seems to be experiencing difficulties with the ACA, many garden pond professionals appear to be overlooking tax credits and other sweeteners for employers that were created as part of the ACA and are already in effect.
The Small Business Health Tax CreditThe Internal Revenue Service has begun encouraging small businesses to explore and, if qualified, claim a unique health insurance coverage tax credit. The credit was created for eligible small businesses that either maintain their current health insurance coverage or begin offering health insurance to their employees.
Small employers (those with no more than 25 employees and average wages below $50,000 annually) are eligible for this federal tax credit, a direct reduction of the pond operation’s tax bill, for up to 35 percent of the amount spent on health insurance for employees. The full amount of the credit is, however, available only to an employer with 10 or fewer full-time equivalent employees (FTEs) and whose employees have average annual full-time equivalent wages from the employer of less than $25,000. These wage limits will be indexed to the Consumer Price Index for years beginning in 2014.
Self-employed garden pond professionals, including partners and sole proprietors; 2 percent shareholders in S corporations; and 5 percent owners are not treated as employees for purposes of the Small Employer Health Insurance Credit. In fact, a special rule prevents sole proprietors — and their family members — from receiving the credit.
Of course, self-employed retailers, distributors, builders, installers and other pond business owners can deduct the cost of health insurance for themselves and their spouses and dependents. Thus, if an S corporation pays accident and health insurance premiums (under a plan established by the S corporation) on behalf of a more-than-2 percent shareholder who is also its employee and who must include the value of the premiums in his or her gross income, the shareholder is permitted to deduct the cost of those premiums paid on his or her behalf.
Employer ResponsibilitiesPrior to the passage of the Affordable Care Act or ACA, there was no federal requirement that employers offer health insurance to employees or to their families. Today, the Federal government estimates that it will pick up $130 billion in Obamacare penalties over the next decade from businesses that either don’t provide employees health insurance or provide what the government considers to be “inadequate” health insurance.
New “Pay or Play” rules will require employers with 50 or more full-time equivalent employees to offer qualified medical benefit plans to employees who work an average of 30 hours per week for a defined Measurement Period. As noted, however, this provision has been postponed. That means employers that cannot substantiate their compliance have until 2015 to plan to avoid the law’s substantial penalties. Fortunately, with the postponed “Employer Mandate,” garden pond professionals will have more time to plan.
That planning should consider the four strategies to reduce this upcoming burden: (1) the mandate does not apply to operations with fewer than 50 workers; (2) the mandate doesn’t apply to employees who work fewer than 30 hours; (3) the employer doesn’t have to offer or subsidize family coverage; and (4) rather than provide health insurance, employers can pay a $2,000 per (full-time) worker fine.
Beware, however, that despite a reported huge shift to part-time employment that began in January 2013, the law contains a 12-month “look back.” That is, in deciding whether a worker is full-time or part-time on January 1, 2015 when the provision kicks in, the government will look at the average weekly hours worked in the previous year.
Plus, the IRS has already signaled that it will count “full-time equivalents” when calculating the number of workers. In addition to full-time employees, large employers must count full-time equivalent employees, determined by dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 120.
Health Insurance ExchangesStarting on January 1, 2014, the law will require nearly all Americans to have health insurance. One option, state-based Health Insurance Exchanges designed to make health insurance affordable and accessible for small businesses and the self-employed, are supposed to be up and running.
While 33 states have opted out of creating “Health Insurance Marketplaces,” open enrollment for health insurance coverage through existing exchanges begins October 1, 2013 for individuals and employees of small businesses. Actual access to the marketplaces begins January 1, 2014 when tax credits will start flowing to millions of people, helping them pay the premiums.
Those who are employed by small businesses but who do not receive insurance through their employer and are on the Exchange will have access to sliding scale tax credits to help pay their premiums. Effective in 2014, for those with access to the Exchange, sliding scale tax credits are provided to individuals and families up to 400 percent of poverty income. That means the tax credits phase out completely for an individual with $43,320 in income and a family of four with $88,200 in income.
A second significant interruption of the Affordable Care Act involved the already-announced one-year delay on key functions of the small business insurance “Marketplaces.” Saying that it could not meet the 2014 deadline, the Administration has delayed parts of the program intended to provide affordable coverage to small businesses and their workers. Instead of a marketplace with choices in the 33 states with federally run exchanges, small businesses will be limited to a more costly single plan until 2015.
Additional taxes on High Wage EarnersTo help pay for making health insurance affordable for small businesses and the middle class, the law included an increase in taxes for high earners. Specifically, for tax years beginning after December 31, 2012, the hospital insurance or “HI” tax rate was increased by 0.9 percentage points on an individual taxpayer earning over $200,000 ($250,000 for married couples filing jointly); these figures are not indexed for inflation.
Also added is a hospital insurance tax on unearned income because, beginning in 2013, a 3.8 percent surtax called an “Unearned Income Medicare Contribution” was placed on the net investment income of anyone earning over $200,000 ($250,000 for a joint return). Net investment income includes interest, dividends, royalties, rents, gross income from a trade or business involving passive activities and net gain from disposition of property (other than property held in a trade or business). It should be noted that income “actively” earned by anyone running a small, closely-held business is exempt from the unearned income surtax.
New Limit on Health Plan ContributionsThe owners and operators of many pond businesses, as well as their employees, have long utilized both flexible spending accounts (FSAs) and health savings accounts (HSAs) to pay for medical expenses with pretax dollars. An HSA goes along with a high-deductible insurance policy and gives individuals a tax deduction for money saved that can be used for health care expenses. An FSA has similar tax advantages, but contributions to it are deducted from an employee’s salary, and money in the account must be used by the end of the year.
New limitations on flexible spending arrangements will hit everyone regardless of income levels, limiting the amount that can be set aside tax-free in a flex plan to $2,500 per year. Previously, there was no technical upper limit, although many employers imposed a $5,000 maximum.
There are also increases in the additional tax on non-qualified distributions from health savings accounts (HSAs) from 10 percent to 20 percent and from Archer MSAs from 15 to 20 percent. And, as mentioned, the amount of contributions to health flexible spending accounts (FSAs) will be limited to $2,500 per year, effective for tax years beginning after December 31, 2012. The dollar amount would be inflation indexed after 2013.
SummaryWhether because of politics or economic realities, the Obama Administration has postponed the date they will begin enforcing the requirement that employers of more than 50 workers provide health insurance from 2014 until 2015. An earlier announcement revealed that small businesses will not be able to access the health insurance “Marketplaces” until 2015, thus limiting the affordable options available. However, the so-called “Individual Mandate,” requiring all individuals to have health insurance, remains.
The tax credits available to small employers for healthcare related expenses started in 2010; the increase in Medicare payroll taxes began in 2013; tax on high-cost “Cadillac” policies will not go into effect until 2018. But the full implementation of the Patient Protection and Affordable Care Act, also known as Obamacare, is just months away. Will you and your pond business be ready?