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Trusted Answers From Licensed Business Professionals

Chief Justice John Roberts laid down the law on Thursday with a swing vote in support of President Obama’s health care plan mandating coverage to all individuals. Those that do not fulfill the mandate will face a financial penalty in the form of a tax. But, what about small businesses? How are they going to be impacted?

Will small businesses be fined for not providing coverage?how-to-price-goods-and-services
It depends on the size of the business. Small businesses with less than 50 employees will not be fined for not providing coverage. But, they may face competitive pressures from larger companies in their industry with over 50 full-time employees that must provide coverage. Specifically, those companies with over 50 or more full-time employees that work over 30 hours per week and one or more employees receive premium subsidies in a SHOP exchange (see below), the fine is the lesser of $3,000 per subsidized employee or $750 per employee. Businesses that don’t offer insurance, but have over 50 employees and one or more receive premium subsidies in a SHOP exchange, then the fine is $750 per employee. Small businesses will have to run the numbers for their specific situation, but it may be cheaper to pay the fines than offer the insurance.

Online Health Care Exchanges
Starting in 2014, states are required to setup Small Business Health Option (SHOPs) programs which would allow those with less than 100 employees to have the option to buy health insurance as a group. However, many states have yet to put together formal plans to implement an exchange and some are suing the federal government over the mandate. The federal government argues that the marketplaces will reduce costs as indicated in the Congressional Budget Office estimate of health care cost savings in the 1% to 4% range. But, one of the problems with this plan is that health insurance companies are going to be charging an arm and leg before 2014 to prepare for potentially thinner margins and the options for small businesses will actually be much more limiting.

New reporting requirements for larger businesses
Medium to large sized businesses with over 250 employees will need to track the full cost of medical coverage which includes their share as well as the employee’s share as it is a requirement for 2013 W-2 forms. Beginning in 2013, this same tracking requirement will be applied to those businesses that employ less than 250 employees. Either way, more paperwork is headed your way. But, let’s be clear that this is a compliance requirement and no additional tax liability will be assessed on W-2 Forms as some have thought.

At first blush, this requirement may not sound all that bad until you think about the variables that happen throughout the year. Employees leave, are hired, their marital status changes, they have children, all things that will change the cost and the amount that needs to be tracked.

Are there any tax breaks?
Yes, if you own a small business and employ fewer than 25 full-time equivalent employees, you may very well be eligible for the health care tax credit. It all depends on your employees’ average annual wages, and whether you pay part of their health care coverage. If you meet specific criteria, you could be eligible for a tax credit of up to a maximum of 35 percent of your health care premium costs. It jumps to 50% in 2014.

More Questions? Ask your small business tax questions or hire an accountant online.

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