By now you’ve probably seen the headlines that the Supreme Court announced its decision on health care reform and are wondering what it all means. What parts of the laws have been upheld? As a business owner, what will you need to do to comply with them?
In general, all of the tax provisions in the health care reform laws have been defended and will continue to be phased in over the next two years. Here’s what you need to know about what that means for you and your business.
The individual mandate and business “play or pay” are here to stay.
Under the health care laws, both business and individuals are required to buy or provide, respectively, health care insurance or else pay a tax. Both of these parts of the legislation have been upheld and go live in 2014.
The Individual Mandate
For individuals who do not obtain sufficient health care coverage, there is a tax of either a fixed dollar amount or 1 to 2 percent of your income, depending on your income level and the year. There is a minimum income level under which the tax does not apply.
How this impacts you:
If you’re currently uninsured, you’ll need to get sufficient insurance by 2014 or you may face this tax.
Play or Pay
This component of the law impacts businesses. Play or pay requires that minimum insurance coverage be offered to employees or else forces the business to pay a tax of $2,000 per employee. There is no penalty for the first 30 employees and there are some exceptions for small businesses.
To help ease the transition to compliance with this requirement, there is a health care tax credit available for certain small businesses. This credit remains in effect and is currently available to certain small employers who provide more than 50 percent insurance coverage to their workers before the “play or pay” goes active in 2014. The credit will be modified, but will remain in effect, once the “play or pay” provision goes into effect.
How this impacts you:
If you have more than 50 employees and don’t offer insurance, you’ll need to develop a plan to comply with play or pay.
Increased Taxes for High-Income Individuals
Individuals with high wages or investment earnings will face additional Medicare taxes. Starting in 2013, high wage-earning salaried or self-employed individuals will be required to pay an additional 0.9 percent Medicare tax. Additionally, a 3.8 percent Medicare tax will be imposed on certain higher income taxpayer’s investment income. Combined with the effect of the expiring “Bush tax cuts,” this is set to raise the top capital gain rate to 23.8 percent in 2013.
How this impacts you:
If you’re a high-income individual (over $200,000 in adjusted gross income), you should discuss your employment and investment options situation with your tax advisor to develop a tax planning strategy to mitigate this increased tax burden.
Depending on your type of business and tax situation, other parts of the Supreme Court decision may impact you in the months and years ahead. Be sure to contact your tax advisor to explore how your short- or long-term business or tax plans may need to be modified.
Joseph Popp, JD, LLM, is a senior tax associate with Rea & Associates, Inc. He can be reached at (614) 923-6577 or [email protected].
