2010 Health Reform Legislation -
For Owners of small businesses and their employee, the new health reform legislation has some key provisions to pay attention to. The major provisions include tax credits, excise taxes and penalties. But whether a business is affected by them depends on a variety of factors, such as the number of employees the business has. I'm writing to give you an overview of the provisision in the new law with the biggest impact on small business. Please call our offices for details of how the new changes may affect your specific business.
TAX CREDITS TO SMALL BUSINESSES THAT PROVIDE INSURANCE - The new law provides small businesses with a tax credit for non elective contributions to purchase health insurance for their employees. The credit can offset an employers regular tax or its alternative minimum liability. To quality, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium costs. The business must have no more than 25 full-time employees and the employees must have annual wages that average more than $50,000. However, the full amount of the credit is available only to an employer with 10 or few full time employees.and whose average annually wages of less than $25,000.
The credit is initially available for any tax beginning in 2010, 2011,2012 or 2013. Qualifying heath insurance for claiming the credit for the first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage through a state exchange and is available for two years.
For tax years beginning in 2010, 2011, 2012, or 2013 the credit is generally 35% (50% for tax years beginning after 2013) of the employer's non-elective contributions towards the employees health insurance premiums. The credit phases out as firm size and average wage increases. Tax-exempt small business meeting these requirments are eligible for payroll tax credits of up to 25% for tax years beginning in 2010, 2011, 2012 or 2013 (35% in tax years beginning after 2013) of the employers non-elective contributins toward the employees health insurance premiums.
Self-employed individuals, sole proprietors, two percent shareholders of an S corporation, and five percent ovwners of the employer are not treated as employees for the purpose of this credit. Thus, the credit is not available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full time equivalent employees or average full time wages.
MOST SMALL BUSINESSES EXEMPTED FROM PENALITIES FOR NOT OFFERING COVERAGE TO THEIR EMPLOYEES. Although the new law imposes penalties on certain businesses for not providing coverage to their employees, most small businesses won't have to worry about this provision because employers with fewer than 50 employes are not subject to this penalty. For businesses largeer than 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full time employee who receives a premium tax credit will pay $3,000 for each employee receiving a premium credit. These provisions take effect on January 1, 2014.
THE CADILLACT TAX ON HIGH COST HEALTH PLANS - The new law places an excise tax on high cost employer sponsored health coverage (ofter referred to as Cadillac health plans. This is a 40% excise tax on insurance companies, based on the premiums that exceed certain amounts. The tax is not on employers themselves unless they are self funded. However, it is expected that employers and workers will ultimately bear the this tax in the form of higher premiums passed on by insurer.
The new tax, which applies for tax years beginning after December 31, 2017, places a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan to the extent that annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An addtional threshold of $1,650 for single coverage and $27,500 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. Stand alone dental and vision plans are excluded in applying the tax. The excise tax will be levied at the insurer level.
