How will the Health Care and Education Reconciliation Act of 2010 affect businesses?
The health care reform package does not require employers to provide health insurance coverage. However, large employers with 50 or more full-time employees will be subject to ‘play or pay’ rules after 2013.
The new law (combined with the previous act it amended) includes more than $400 billion in revenue raisers and new taxes on employers and individuals. This is basically a large part of how we are paying for all the stimulus funds. Eventually, in the 2014 realm the government is saying ‘you have to provide insurance or there are even more taxes that kick in.’ The effects start in 2010 and go all the way to 2018. Each year, more and more come into effect, with the major taxing portions set to hit our wallets in 2013.
For small businesses, there are some good things happening in 2010. First, the smaller employer tax credit. If you are a small employer with no more than 25 employees, with average annual wages of no more than $50,000 per worker, you could receive a tax credit for up to 35 percent of the contribution the company makes toward employees’ health care premiums. The credit goes up to 50 percent in 2013.
What will happen further down the line?
Two major tax provisions are slated for 2011: Right now, under flexible savings accounts (FSA) or health savings accounts (HSA), you can deduct the cost of over-the-counter medicine. In 2011, you will only be able to deduct medicines obtained with a doctor’s prescription.
Second, employers will have to list the value of health benefits on employees’ W-2 forms. This is for informational purposes only until 2013. By showing employees the value of their health benefits, they will have an idea of what is going to be taxed.
Also, 2013 is when the Medicare tax increases. There is a new 3.8 percent tax on net investment income. The itemized medical expenses go from 7.5 percent to 10 percent of adjusted gross income. Your company’s FSAs, which are $5,000 currently, will be reduced to $2,500.
There is much to plan for in the near future. Find a good tax planner and do it right!
Warren E. Hennagin, C.P.A. M.S.-Tax, CCIFP, is a director with Glenn M. Gelman & Associates. Reach him at (714) 667-2602 or [email protected].
