What every print service provider needs to know: the employer mandate, the individual mandate, the exchanges, and much more.
Beginning in 2014, sole proprietors, owners, and small businesses can shop for less-expensive insurance through exchanges in each state. One-person businesses can turn to exchanges for individuals. Companies with up to 100 workers can look into the SHOP Exchanges. Both programs have a similar approach to bringing down costs: increasing the size of the insured pool to spread the risk.
Although no exchange is up and running as of this writing, a dozen states have already begun establishing these. In theory, they will give small print businesses the long-awaited ability to buy insurance at rates that once only belonged to larger companies.
Lower deductibles, more out-of-pocket
Individuals with incomes between 100- and 400-percent of the poverty level will enjoy reductions to their out-of-pocket healthcare expenses by two-thirds, one-half, or one-third, depending on their income. These tax breaks go into effect after December 31, 2013.
On the other hand, any business that rewards its owners, shareholders, or employees with health-insurance coverage that exceeds a threshold amount established by lawmakers will face a 40-percent excise tax beginning in 2018. Although the IRS has yet to weigh in, the dollar limit for determining the tax threshholds are $10,200 (for 2018) multiplied by the health-cost-adjustment percentage for an employee with self-only coverage, and $27,500 (for 2018) for employees with coverage other than self-only coverage.
In addition to a hike in the Medicare Payroll Tax on self-employment income (from 2.9 to 3.8 percent), an“unearned income Medicare contribution” tax will impose the new 3.8-percent rate on so-called “net investment income.” This includes interest, dividends, annuities, royalties, certain rents, and other “passive” business income. However, only individuals with incomes in excess of $200,000, and married couples with incomes greater than $250,000 will be subject to the 3.8-percent tax.
There are also a number of new rules for the healthcare programs currently used by many small-business owners and their workers. For instance: Effective last year, sole proprietors and owners of small businesses are no longer able to use a health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin). Also going into effect last year: an increased tax on non-medical early withdrawals from an HSA – from 10 to 20 percent – which puts them at a disadvantage with IRAs and other tax-advantaged accounts (which remained at 10 percent).
While there is no cap under current law, beginning January 1, 2013, employees will face a $2500 cap on the amount of pre-tax salary deferrals made into a healthcare flexible spending account. And, thanks to the FSA “use-it-or-lose-it rule,” employees forfeit unused funds in their accounts at the end of the plan year.
Premiums might drop
Many are already claiming that the ACA gives employers a financial incentive to stop providing health insurance because the fines for not offering insurance are much less than the actual cost of insurance.While it’s true that a print business might initially save money in doing so, the law provides for penalties that will rise as insurance premiums do. In addition, a print-business owner must consider the fact that not providing insurance can hurt the company in terms of employee morale, and in its ability to attract good workers. What they save in money may cost them in terms of productivity and reputation as an employer.
And employers need to also keep in mind the following:
• The ACA limits how much premiums can go up each year – premiums for some print businesses might actually drop under the law compared with what they're paying now.
• The law eliminates the surcharges that insurers impose on employers who have workers with serious medical conditions.
• The exchanges are expected to offer small businesses lower rates than insurance companies charge. And businesses will also get tax credits for six years for providing coverage.
• Because the law requires every individual to have health insurance, the smallest businesses – those with fewer than 50 employees – will be able to lure good workers away from larger companies without healthcare benefits being a major factor.
While there is the possibility that lawmakers will strive to completely or partially repeal the ACA, planning to cope with the tax adjustments already-in place, as well as those scheduled in the years ahead, is strongly advised.
Mark Battersby is a freelance writer who has specialized in taxes and finance for the last 25 years.