January 14, 2013
The third wave of taxes to help pay for the Patient Protection and Affordable Care Act, often called Obamacare, began Jan. 1. The taxes are designed to help subsidize private health insurance and the expansion of Medicaid that begins in earnest in 2014.
The business community generally has little affection for Obamacare and the increased costs it will bring. Preliminary data from the 2012 National Survey of Employer-Sponsored Health Plans — a study of employers with 10 to more than 500 employees — predicts the average per-employee cost of health coverage will rise about 6.5% in 2013. To reduce the impact of the increase, nearly 60% of employers surveyed plan to shift costs to their employees.
Very few employers surveyed anticipated canceling their health benefit plans after reform is fully implemented — about 16% of smaller employers (between 10 and 499 employees) and 6% of larger employers.
In our view, many business owners haven’t prepared for the changes that will take place next year. We believe it makes sense to review the impact the new law may have on you and your business.
Here are some healthcare reform provisions going into effect in 2013 that may impact small-business owners:
Exchange enrollment. Open enrollment for individual and small-business health insurance exchanges begins Oct. 1. The exchanges will allow individuals and small businesses with up to 100 employees to shop for qualified health insurance coverage online.
States were supposed to declare in November if they plan to run their own exchanges or default to exchanges operated by the federal government, but some asked for extensions. Consequently, it’s not clear how many states actually will have exchanges ready by the Jan. 1, 2014, target date.
Tax implications. Eligible employers that provide health coverage will again get a tax credit for up to 35% of their contribution toward employee insurance. The credit, based on average wages and number of employees, goes up to 50% for tax year 2014.
High-income individuals. A 3.8% Medicare contribution tax will apply to investment income for tax year 2013 — including interest, dividends, annuities, royalties and rents — for singles with modified adjusted gross income (MAGI) greater than $200,000 and married taxpayers with $250,000 MAGI.
Those same people must pay an additional 0.9% Medicare payroll tax on wages above $200,000 for individuals and $250,000 for couples. This means the current 2.9% Medicare payroll tax will be increased to a total of 3.8% — an especially big blow for the self-employed.
W-2 reporting. W-2s issued in January 2013 must include a line showing the benefit employees receive from their employer-sponsored healthcare plan, which is designed to make healthcare benefits and spending more transparent. The additional reporting may increase employers’ accounting/tax-preparation expenses.
Medical-device manufacturers. Medical-device firms — many of which are small, entrepreneurial companies rather than healthcare titans — face a 2.3% tax on gross revenues, regardless of whether they make a profit.
Those firms may charge more in turn, causing overall healthcare costs to go up.
Flexible Spending Account (FSA) limits. The law limits to $2,500 the amount of tax-free money that workers can put aside for medical costs. Previously there was no government-mandated cap.
Itemized medical deductions. The new threshold for allowed medical deductions is 10% (up from 7.5%) of adjusted gross income.