The Patient Protection and Affordable Care Act of 2010 was landmark health care legislation. Many small business owners rightly wonder how it will affect their bottom line when it comes to expenses for themselves and for employees.
Here are some facts about the new health care law as it pertains to small businesses.
Tax Credit Increases
From 2010 to 2013, the IRS states small businesses get tax credits for 35 percent of all health insurance premiums paid for employees. In 2014, that goes up to 50 percent, thanks to the law. Small businesses will need to weigh their options when it comes to any costs of plans that go up versus getting the year-end tax credit. Remember, tax credits reduce your taxable income as opposed to offering a direct refund for buying an employee's health insurance. Employees may also take off deductions for health insurance premiums if they itemize deductions.
Magic Number 10
The magic number to receive the most benefits from the tax credit is 10, according to the IRS. Employers with 10 or fewer full-time equivalent (FTE) employees that pay an average annual salary of $25,000 or less get to write off more of the expenses for health care coverage towards employees. The tax credit will be completely phased out for employers with 25 or more FTEs or those that have an average annual salary of $50,000 or more.
Large Percentage of Employers
The Census Bureau states there are over 5.9 million small businesses with employees on the rolls as of 2008. Of those, nearly 5.3 million have 20 or fewer employees. A full 95 percent of small businesses will benefit from the new law.
The White House claims the law will save over 4 million small business nearly $40 billion over the next 10 years once the law is implemented. Savings will come from the tax credit for health insurance and a supposed overall reduction of premiums.
Beginning in 2014, small businesses can participate in the Small Business Health Options Programs (SHOPs). With such a program, the U.S. Department of Health and Human Services states insurance companies can offer several plans for employers and employees. That way, individuals can choose from multiple plans and provide easy-to-read guides to compare what is covered by each plan and what isn't. How much premiums cost would also be included with the so-called Affordable Insurance Exchanges.
Flexible Spending Accounts
Changes were made to flexible spending accounts (FSA) so they could be designed to cover higher costs of major medical expenses. The IRS states FSAs no longer cover costs of over-the-counter medication. Such medicines cannot be deducted from these accounts unless a prescription is obtained. Medical devices such as eyeglasses are exempt. Insulin is also exempt from the law. Small businesses and employees need to be aware of these changes so they can budget accordingly.
Reporting of insurance benefits will not be mandatory in 2011. The reason is to give employers time to get ready for the new changes going into effect for 2012. The new Affordable Care Act will make small businesses report the costs of providing insurance to employees in 2012. Until that time, reporting is optional, and firms will not be penalized for failing to report the expense on employee W-2 forms. Two IRS fact sheets explain what is happening.
Direct Medical Care
The new law requires health insurance companies providing products for businesses with 50 or fewer employees to have 80 percent or more of the insurance premiums go towards direct care or improving the quality of care. In other words, your premium won't cover exorbitant administrative costs, according to the Dept. of Health and Human Services. Providing insurance will mean your employees will have better coverage than before the new law was enacted.
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