What the Affordable Care Act Means for Your Small Business

Finding accurate information on the Patient Protection and Affordable Care Act of 2010 (ACA) can be cumbersome, especially when you’re already short on time. At Forbush and Associates, we are committed to making sure our clients are up-to-date on new laws that affect their business.

With 2013 half done, we take a look at how the law has and will affect our self-employed and small business clients.

What 2013 Brought

Medicare Assessment on Net Investment Income

Self-employed individuals and small businesses may have noticed a hit on their bank accounts when the new Medicare assessment on net investment income began this year.  In January, a 3.8% tax was placed on all net investment income such as taxable capital gains, rents, dividends, and royalties.

For singles, the interest for those with a Modified Adjusted Gross Income over $200,000 will be taxed. For married joint filers, those with a MAGI over $250,000 will notice the additional tax.  Income not affected by the new tax: wages, unemployment wages, Social Security benefits, operating income from a non-passive business, self-employment income, alimony, and-tax exempt income.

Open Enrollment for Health Insurance Marketplace

In October 2013, individuals and small businesses will be able to participate in the open enrollment in the Health Insurance Marketplace. The Marketplace is designed to ease the burden of finding insurance plans that are within your budget. While more information will be released in October, healthcare.gov provides a good checklist to prepare for the coming changes:

1. Understand how insurance works.
2. Learn about different types of insurance.
3. Set your budget.
4. Determine when you will start your new coverage.
5. Get organized.
6. Develop a list of questions to ask before it is time to choose your health care plan.
7. Seek help from insurance brokers with whom you already have a relationship.

Self-employed individuals will be able to join open enrollment for the Health Insurance Marketplace. You will be to choose from four different plans that differ by the percentage of costs the health plan covers. Some may be able to qualify for tax credits and subsidies based on a sliding scale.

Let’s talk about 2014.

Next year is perhaps the biggest year for the Affordable Care Act for small businesses. From 2010-2013, the maximum tax credit was 35% for small businesses and 25% for tax-exempt organizations.  On January 1^st, 2014, the Small Business Health Care Credit will become effective, meaning an increase to 50% and 35%.

To be eligible, your company must cover at least 50% of single health care coverage. Your company must have fewer than 25 full time employees who earn less than $50,000 per year. This is where it gets a little tricky.

Let’s say you have two part-time employees. According to the ACA, they count as one full time employee.  So if you have 20 part time employees, you will count 10 full time employees.

To determine wages, divide the total you pay in wages by the number of full time employees. Your tax credit may change depending on your final number. For more guidance, the IRS provides a step-by-step guide.

Transitional Reinsurance Program Fees

Designed to help stabilize premiums for coverage, this three-year program will run from 2014 through 2016.  It reimburses insurers in the individual insurance Marketplaces for high claim costs. This reimbursement will be paid by self-insured employers whose plans provide major medical coverage, including retiree programs.

In 2014, HHS estimates that the fees will be $5.25 a month (or $63 for the year) for each individual covered under a health care plan, with the required fee for the following two years to be somewhat lower.

Reporting

We saw that grimace. Unfortunately with new rules comes new paperwork. Employers with self-insured plans must submit reports to the IRS detailing information on each covered individual starting in 2014. These reports must be filed by 2015 and the IRS will be providing more information in the coming months.

While the list of changes the Affordable Care Act grows, we’ve identified several of the changes that may take a little more time and money depending on your situation. As always, feel free to contact us with questions about the law or if you need advice on the best steps to take for you and/or your small business.