It’s looking more and more like Tuesday will be a split-screen day: The government will shut down, and Obamacare will open for business. Barring some last-minute deal, which is getting less likely with each passing moment, the federal government will shut down on Tuesday because the House and the Senate are unable to pass a spending bill that resolves their deep and persistent differences over Obamacare.
No matter which side you are on, I wanted you to know the top 10 things business owners need to be aware of with ObamaCare:
The Patient Protection and Affordable Care Act, known as Obamacare, imposes five new taxes and a four-part insurance mandate in 2013.
Here are the 10 things you need to know about Obamacare’s new rules:
1- Additional Medicare Tax on Earned Income
Beginning in 2013, a 0.9{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} additional Medicare tax will be applied to the employee’s share of wages and net self-employment income that is above $200,000 for single, head-of-household, or surviving spouse; $250,000 for married filing jointly; and $125,000 for married filing separately. This tax is part of employer’s overall withholding, which they are required to apply at $200,000 of wages (including taxable fringe benefits, bonuses, tips, commissions, or other supplemental payments). Previous regulations allowed employees to receive credit for taxes withheld by the employer, even if not remitted to the IRS. Under Obamacare, the employee is personally responsible if the employer fails to withhold the 0.9{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} additional Medicare tax. Maximizing contributions to a qualified retirement plan such as a 401(k) would not impact the Additional Medicare tax calculation.
Self-employed individuals will add the 0.9{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} Additional Medicare Tax to their current self-employment tax and will not receive an income tax deduction for one-half of the 0.9{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} Additional Medicare Tax on earned income. Any deductions for contributions to qualified retirement plans would be calculated after self-employment tax and the 0.9{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} Additional Medicare Tax.
For tax planning purposes, use S corporations to avoid wages and self-employment income because shareholder’s distributive share of S corporation income is not subject to this Tax. Taxpayers should also file separately to avoid exceeding thresholds.
2-Net Investment Income Tax
A 3.8{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} Net Investment Income Tax will be imposed on individuals and estate and trusts, on the lesser of an individual’s “net investment income” for the tax year, or any excess of modified adjusted gross income for the tax year over a threshold amount ($200,000 for single and head-of-household; $250,000 for married filing jointly and surviving spouses; $125,000 for married filing separately). This Tax does not apply to non-resident aliens or to certain trusts. Net investment income includes gross income from interest, dividends, annuities, royalties, and rents; other gross income from any passive trade or business; and any income, gain, or loss attributable to an investment of working capital. It does NOT include distributions from qualified employee benefit plans, retirement arrangements, or regular/Roth IRAs; or Social Security benefits. S Corporation owners and real estate professionals who materially participate in their respective activities will be exempt from this tax on ordinary and rental income. Net Investment Income Tax targets passive activity income, so taxpayers should reconsider their groupings. To avoid Net Investment Income Tax, taxpayers should materially participate in S corporations, use Roth IRA to reduce MAGI below threshold amounts, purchase tax-exempt bonds, transfer interests in pass-through entities to family members, use insurance and deferred annuities, opt for sales in installments, use charitable remainder trusts, smooth income, and file separately.
3-Increased Threshold for Medical Expenses
After 2012, medical expenses must exceed 10{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} of adjusted gross income to qualify for a deduction. Through 2016, it will stay at 7.5{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} for those over age 65. Those harmed the most by this will be near retirees and individuals with modest incomes but high medical bills.
4-Limit on Flexible Spending Accounts
Before 2013, Health Care Flexible Spending Accounts allowed unlimited contributions. Now there will be a maximum of $2500 allowed. Families with special needs children will be hit the hardest by this because many schools that teach special needs are much more expensive than this maximum amount allowable.
5-Medical Device Tax
A 2.3{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} excise tax on the sale of certain medical devices was imposed on manufacturers, producers, and importers starting December 31, 2012. This tax is not applicable to eyeglasses, contact lenses, or hearing aids.
6-Insurance Mandate
Individual mandate: Individuals unable to afford health insurance will quality for Medicare/Medicaid or can shop for affordable insurance on Health Insurance Exchanges, federal or state-run online marketplaces. Varying plans will offer the same benefits with different co-pays and deductibles. Small businesses can buy insurance for employees at these exchanges. Those who forgo insurance coverage will pay a monthly penalty equal to 1/12 of the greater of a flat dollar amount ($95 per year in 2014) or the applicable percentage of income (1{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} in 2014). Premiums will be subsidized for households making below four times the federal poverty line ($92,200 for a family of four in 2012). Employer mandate: Employers with 50 or more full-time equivalent employees (30 hours+ on average) will have to provide insurance or face a penalty of $2000 per full-time employee after the first 30 employees. Part-time workers and small businesses will be particularly hurt by this mandate. Hospital mandate: Hospitals will be fined if too many Medicare patients are readmitted within 30 days of discharge. Insurance Company Mandate: Insurance companies can no longer deny individuals or charge higher for pre-existing conditions, drop them when they become sick, or cancel insurance policies for frivolous reasons.
Unmarried children can be insured on their parents’ plan until age 26, unless able to obtain health insurance from their employer. Retirees under 65 will not be able to use their insurance to cover adult children as dependents. Insurance companies may not cap annual or lifetime benefits of beneficiaries. Essential health benefits, to be determined by Health & Human Services, must cover at least 60{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} of medical costs of enrollees. Insurance companies may only charge different premiums for individuals based on age, tobacco usage, and geographic location. Additionally, insurers must maintain minimum medical loss ratios (85{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} for plans with 101 or more employees, 80{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} for plans with 100 or fewer employees). These percentages represent the amount that must be spent per premium dollar on reimbursement for clinical services provided to enrollees and activities that improve health care quality.
7. Health Insurance Tax (HIT) will be tax passed on to small business owners as higher premiums; this will cost small businesses over $100 billion over the first 10 years.
8. HSA changes – health savings account will no longer be available to pretax dollars to buy OTC medications
9. Income tax Deductions–medical expenses deductions must exceed 10{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} of adjusted gross income to qualify for this deduction.
10. Cadillac Tax – surcharge 40{6f8a1d7e9c2e1391bb9a4f8ef6787161bf7ec0d1545521b48058899ec1270ca5} excise tax on the value of the health insurance benefits that exceed the threshold, kicks in 2018.
SUBSIDIES
Earning less than $33,000 will allow you to apply for a subsidy
Medicaid, Maryland insurance program and CHIP program will be phased out as of Jan 1, 2014
EXAMPLES
Age 33, family of 4, $36,000 will qualify for $11,525 in government tax credit
Age 57, family of 4, $95,000 will qualify for $0 in government tax credit
There are a lot of changes to your taxes to absorb. Let us work with you to figure out the best solution for your tax situation. Contact us for a FREE consultation at 1.888.502.3767
