Healthcare reform in the form of the Affordable Care Act (ACA) aka Obamacare has brought significant changes to the context of small business owners. Although there is a fair bit of resistance to this Act by small businesses, there are a few things business owners should keep in mind when changing their own policies.
Compulsory healthcare provision: All businesses employing more than 50 people working full-time, an average of 30 hours per week, have to provide health insurance for their employees. If a business owner owns three businesses, the government treats them as one and therefore those employed by all three will be counted. A state-based exchange called the Small Business Health Options Program (SHOP), set up and run in each state by the government or a nonprofit organization, will offer qualified health insurance options for individuals and small businesses with up to 100 employees. These will be up and running by 2014.
Tax credit: Those businesses that employ fewer than 50 employees are not required by the Act to provide health insurance to their employees. However, the government has instituted a Small Business Health Care Tax Credit to offset any increased costs that small businesses will have to bear by virtue of the ACA. This tax credit can cover up to 35 percent of the premiums that any small business, whether a for-profit or a non-profit organization, will have to pay to cover its workers.
Any firm that has fewer than 25 full-time workers or 50 halftime workers (two half-time workers are equivalent to a full-time worker), qualifies for this tax credit provided they pay average annual wages less than $50,000, and cover at least 50% of the health care cost for their staff. The Council of Economic Advisors estimates the number of eligible small businesses at 4 million, and the Congressional Budget Office believes that this tax credit will save small businesses a total sum of $40 billion by 2019.
The credit will phase out gradually for firms with between 10 and 25 employees, and those who pay annual wages between $25,000 and $50,000. Also, before choosing a plan, know that the tax credit is calculated in accordance with the average cost of health insurance in that state, so be careful not to choose a plan that is at a much higher cost than average. Depending on where on the tax credit spectrum your small business falls figure out how much credit is applicable to you and make the most of this opportunity.
Compliance and fines: As noted in the above two points, the size of your business, i.e. how many employees you have in your staff and how much annual wage you pay, determines how Obamacare affects you. It uses a carrot and sticks approach to influence businesses to support their employees by providing healthcare. Businesses that have less than 25 full-time employees need not provide healthcare but if they do they get tax credits. However, businesses that do employ 50 or more full-time employees and do not do so will penalize with a fine of $2-3,000 per employee per year, beyond the first 30 full-time employees.
Employers now have to track the full cost of medical coverage, including the employer’s and the employee’s share. These costs have to be reported on their employees’ W-2 forms, to keep the government informed.
The Affordable Health Act does have some ambiguous points that are evoking resistance from small business owners. The key to successfully negotiating this new web of healthcare is to carefully figure out what are the finer points of the ACA that apply to your specific business.
To get help with compliance and payroll call 1-800-329-2040 to speak to a Payroll Management Specialist.
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