2012 – Small Business
For owners of small businesses and their workers, the recently enacted health reform legislation has some key provisions to pay attention to. The major ones include: tax credits; excise taxes; and penalties. However, this depends on a variety of factors, such as the number of employees the business has.
The new health law establishes small business tax credits; creates health insurance exchanges; ends price discrimination against small businesses; promotes entrepreneurship through health care security; reduces the hidden tax on small business employees with health insurance; and, reduces premiums for small businesses.
• A key component of health care reform -- provides tax credits to small businesses. This helps them afford the cost of covering their workers with a health insurance plan.
The tax credit is effective immediately. It can cover up to 35 percent of the premiums a small business pays to cover ...view middle of the document...
Tax-exempt small businesses meeting these requirements are eligible for payroll tax credits of up to 25% for tax years beginning in 2010, 2011, 2012, or 2013 (35% in tax years beginning after 2013) of the employer’s nonelective contributions toward the employees’ health insurance premiums.
• Small business tax credit: A temporary small business tax credit is available for some firms who provide qualified health coverage. However, the credit puts small business owners through a series of complicated tests to determine the actual amount of the credit. (1) Very few small firms will receive the full credit (only firms with 10 employees or less). For firms with 11-25 employees, the credit is reduced per employee. Firms with more than 25 employees get NO credit. (2) Only firms who pay their workers an average of $25,000 or less are eligible for the full credit. The credit is reduced as the average wage goes up, stopping when it reaches $50,000. (3) Only firms covering 50% or more of insurance costs will be eligible. (4) The credit is only available for a maximum of six years. There are additional provisions for start-up firms beginning business after the enactment of this law.
• 1099 reporting: Businesses will have to send Form 1099s for every business-to-business transaction of $600 or more – a tremendous new paperwork burden for small business.
• Most small businesses will be exempted from penalties for not offering coverage to their employees. Although the new law imposes penalties on certain businesses for providing coverage, most small businesses won’t have to worry about this provision because employers with fewer than 50 aren’t subject to the “pay or play” penalty. With businesses with at least 50, the possible penalties vary depending on whether or not the employer offers health insurance to its employees.
• Starting in 2011, small businesses with up to 100 employees can offer “simple cafeteria” plans. These plans will allow employees to save part of their paycheck in an account they can use to pay for medical expenses.
• The new health care bill also creates grants to help small businesses provide workplace wellness programs. In 2011, a total of $200 million in grants will be available over a five-year period.