Whether you are a fan of the Affordable Care Act or not, it has passed into law. Here’s what you need to know about how it will affect your small business.
The Affordable Care Act, also known as Obamacare, has generated lively debate from the halls of Congress all the way to the armchair politicians around the nation. You’ll be happy to know that this is not an article debating the pros and cons. These are the facts that you should know as a small-business owner.
Know the 50/30 Rule
Here’s how it works: If you’re a business owner that has at least 50 employees working 30 hours per week, you are required to provide insurance. However, what if you have 100 employees that work 15 hours per week? Any mathematical division of the 50/30 rule applies.
But, what if you own three businesses and each employs 20 employees that work 30 hours per week? Under IRS and treasury rules, you have to provide health care coverage. Sounds like lawmakers did their best to think of all of the mathematical loopholes.
How about seasonal workers? You MIGHT not have to provide coverage but you’re going to need the help of an expert to figure it out.
Providing there are no changes to the law, business owners will have to insure eligible employees by January 1, 2014.
Could You Just Pay the Penalty?
The penalty is up to $3,000 per employee but you’re exempt from fines for the first 30 employees. Assuming a fine of $2,000 per employee, that leaves you with a bill of $40,000. But your fine isn’t tax deductible. Although you may think that $40,000 in fines is less than annual health insurance premium, once you deduct the health insurance cost on your tax return, the fine may cost more.
If you have fewer than 25 employees and pay average annual wages below $50,000, you may qualify for a tax credit of up to 35 percent, according to the IRS. This isn’t new. This credit started in 2010 and will increase to 50 percent in 2014.
Unlike a deduction, if you qualify for a 20 percent credit, that’s money directly deducted from your tax bill. Let’s say you paid $50,000 in employee health care expenses in 2013. When you complete your 2013 taxes, you reduce your tax bill by $7,500. Even better, if you didn’t have a tax bill in 2013, you can apply it to past or future returns.
SHOP was pushed back until 2014 but it’s still coming. When the law was written, it was widely known that a large corporation with thousands of employees had more bargaining power over insurance rates than companies with a smaller number. Healthcare.org estimates that small businesses pay 18 percent more for health insurance than larger companies. The Small Business Health Options Program (SHOP) is supposed to give you access to plans have lower costs—like what big companies would pay.
The SHOP is the business version of the Marketplace that is available to individuals. SHOP will allow you to compare plans based on the information you provide. You and your employees can choose from various coverage options.
If you employ low-wage employees, you are not required to provide coverage for those that qualify for Medicaid. If your state adopts the Medicaid expansion, a single adult that earns up to 138 percent of the federal poverty level will qualify for Medicaid in 2014. For states that don’t adopt the expansion, you, the employer, may have to provide coverage as if they’re any other employee.
Will it Cost you More?
According to whitehouse.gov, the Affordable Care Act will reduce health care premiums for small businesses by up to 4 percent, or $2,000 per employee. It cites Congressional Budget Office figures for this claim. Others dispute the claim and argue that costs will significantly rise. A U.S. Chamber of Commerce Survey found that 75 percent of small-business owners believe that Obamacare will raise costs. Another survey found that 66 percent of small-business owners don’t yet have a strategy for managing the new mandates.
Regardless of what people think of the affordable care act, it’s here, it’s law, and small-business owners have to make plans for the new mandates.
Some business owners are seeking expert advice on how to implement the law’s requirements. Although it might be expensive to hire experts to help with the implementation, it might cost less than spending the hours it will take to figure it out on your own.
Your employees will likely need help as well. Talk to your account or attorney about people in your area who can assist.