Today, the Obama administration announced a one-year delay on the Affordable Care Act (ACA) mandate, also known as Obamacare, that employers provide coverage for their workers or pay penalties. With 2013 more than half over, the January 2014 deadline was looming and had many small business owners wondering just how much these laws were going to be affecting them in the upcoming year. The massive 906-page law is not without its detractors, but it is real and it is coming, though delayed for the time being. Small business owners need to be prepared.
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Unfortunately (and not surprisingly with a document this dense), very few business owners know exactly what the new Affordable Care Act (ACA) is going to mean to them, and this failure to understand has sparked a lot of debate.
What do small business owners think of the ACA?
In a recent Gallup Poll, in which 603 small business owners were polled about Obamacare, the results were as follows:
- 48% believe that the ACA is going to be bad for small businesses
- 39% think it will have no impact on their business
- 9% percent think it will be good for their business
- 52% think the law will reduce the quality of healthcare for themselves and their employees
- 55% expect to have to pay more for healthcare
- 41% say they have held off on hiring new employees as a result of the Affordable Care Act
- 38% say they have pulled back on plans to expand their businesses as a result of the new healthcare laws
As you can see, there is almost a 50% split between those who think the ACA will hurt small business and those who think that it will either have no impact or a positive one. So, who’s right?
First, what constitutes a “small” business?
Before one can understand how the new healthcare laws are going to affect their business, they have to know whether or not theirs is a true “small” business in the first place. According to the Obamacare plan, a small business is defined as one with fewer than 50 full-time equivalent (30 hours or more per week) employees. Companies with 50 or more employees might still be small businesses, but in relation to the Affordable Care Act, they are not considered “small businesses.”
According to a recent report by CNN Money, 97% of small businesses in America actually have fewer than 50 employees. This means that just 3% of all small businesses in the country will actually be affected by the Affordable Care Act. For everybody else; it’s business as usual.
Will Obamacare force small businesses into providing health insurance?
No. The Affordable Care Act will not require small businesses to provide health insurance for their employees. But, if a small business owner does offer her employees health insurance, then her business will be able to take advantage of certain tax credits. Of course, the tax credits come with their own stipulations. For example, in order to qualify, a small business must meet the following requirements:
- The company must have 25 or fewer full-time equivalent employees
- The average annual wages of the company’s employees must be less than $50,000 per employee
- The company must pay at least half of the insurance premium costs for its employees
This means that small businesses with between 26 and 49 employees will not be eligible for the tax credits.
What exactly are the tax credits?
For companies that meet the above requirements, two consecutive years of tax credits will be available on a sliding scale of up to 35% of premiums paid during tax year 2013 and up to 50% of premiums paid during tax year 2014. Details are still forthcoming, but with the delay it appears these dates will be pushed back to 2014 and 2015 respectively. Both businesses and non-profits are eligible for the tax credits, which are designed to help cover the cost of health insurance.
What about the penalties and fines for not supplying health insurance?
The Affordable Care Act does require companies with 50 or more employees to provide health insurance for their employees or risk penalties and fines. But, government statistics show that 96% of these businesses already offer insurance to their employees. This means just 4% of businesses that fall under this act are going to need to take action.
If a company with 50 or more employees fails to offer health insurance after Obamacare goes into effect in 2014, then there is a reality where they could have to pay penalties up to $40,000 as well as an additional $2,000 for each additional full-time employee.
Where can small businesses find ACA insurance plans?
By January 1, 2014, every state must offer a healthcare insurance exchange where business owners can shop for and compare insurance policies from private providers. In California, the healthcare exchange is Covered California, or you can use a private insurance broker (like Gusto!). The healthcare plans featured will be offered in four tiers of coverage: bronze, silver, gold, and platinum. The primary difference between the tiers is the cost of coverage, not the quality of coverage itself. For example, bronze plans will have less expensive premiums but its members will pay more when they see the doctor. Platinum plans, on the other hand, have much higher premiums, but members pay less when they see the doctor.
Once an employer chooses an insurance plan, they can then choose how much of the premium the business will cover, as long as it is at least 50%. Employees will then be able to pick any insurance policy under the chosen tier and then pay the remainder of the premiums themselves. Employers also have the ability to choose whether or not to include family coverage or offer insurance solely for their employees. If family coverage is not offered, then dependents can obtain individual policies which are also offered in Covered California.
Covered California’s SHOP exchange officially opens October 1, 2013 with coverage starting January 1, 2014.
How can small businesses make the transition to Obamacare’s tax issues easier?
As if small business taxes weren’t complex enough, the new business tax laws being implemented alongside the Affordable Care Act, such as the new surtax of 3.8% on “Net Investment Income” or those individuals with income levels over $200,000 ($250,000 for couples), will be sure to cause many business owners even greater headaches. While these taxes will be delayed until 2015, it’s important that small business start preparing now.
If you’ve been manually processing your business’s payroll, take the time to switch to a provider that is prepared and ready for the Obamacare tax considerations. Not only will doing so help protect your business from costly taxation errors and ensure your healthcare deductions are reported properly, but choosing a modern payroll provider will help save you money and time, so you can focus on what you do best.