Newsletter – August 2013
Healthcare Reform Act
The passing of the healthcare reform act in June 2010 brought with it many changes not just to healthcare but also to the tax code. At its core the healthcare reform act provides most Americans with health insurance. How the health insurance will be issued and administered will be the responsibility of the federal and state governments. Many aspects of the health insurance act will be enforced by the Internal Revenue Service. This is where many of the tax provisions come into play. There are two significant tax provisions to the healthcare act. Mandatory insurance to be provided by small employers and the health insurance tax credit.
Small Business Health Insurance
Small businesses with over fifty employees will be required to provide health insurance to each employee. These employees must be considered full time (average 30 hours per week) and if the employer does not comply with providing health insurance then the employer will have to pay a penalty. This penalty is the form of tax as defined by the US Supreme Court. The collection of this penalty will be the responsibility of the Internal Revenue Service. The Service will collect and enforce this penalty on the individual income tax return of the taxpayer. There will be a large amount of tax planning involved with many businesses as to whether to offer health insurance or not offer health insurance and take the penalty. After an analysis some businesses may not offer health insurance and find it less expensive to pay the penalties.
Health Care Insurance Tax Credit
Some eligible small businesses will be eligible for a small business health care tax credit. To be eligible for this credit the business must have no more than ten full time employees and the average employee wage must not exceed $25,000 per year. The credit is completely phased out when total employees exceed twenty-five or total employee wages exceed $50,000. The credit is 50% of total health insurance premiums paid. This credit can be a valuable tax benefit for certain businesses which qualify.