With more than 500 provisions, the Patient Protection and Affordable Care Act contains hefty tax implications for small business owners.
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Of the 500 provisions in health-care reform, more than 40 of these provisions affect the Internal Revenue Code, including incentives and tax breaks to individuals and small businesses to offset health-care expenses.
Some of the provisions also impose penalties for individuals and businesses that do not obtain health-care coverage for themselves or their employees. According to The Treasury Inspector General of Tax Administration which performed an audit of this law, “Revenue provisions contained in the legislation are designed to generate $438 billion to help pay for the overall cost of health care reform. Additionally, new reporting requirements have been established.”
One overlooked section in the reform fines both small businesses and corporations up to $500,000 for being discriminatory with their health insurance.
The Affordable Care Act requires businesses that offer health insurance to provide it to at least 70% of the employees. It also requires that company executives not discriminate by having better insurance plans for some of their employees. The IRS penalty for companies with 50 or more employees that are found to be discriminatory may be fined as much as $100 per day per person or 10% of the annual premiums whichever is less--up to a maximum of $500,000.
Brett Goldstein, director of retirement planning at American Investment Planners in Jericho, NY states, “Many businesses have health insurance or better benefits for owners and top employees. However under The Affordable Care Act, offering health insurance or different insurance to just a few key employees will be considered discriminatory.”
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What constitutes discrimination under The Affordable Care Act? Goldstein says that offering the top employees health insurance with shorter waiting periods or lower premiums could be discriminatory and lead to fines.
Differences in health plans can exist between different classes of employees. For example, a company can have different benefits for salaried employees vs. hourly employees, but not for “executives” vs. other employees.
The IRS temporarily suspended the health insurance non-discrimination rules in 2010. However now that the Supreme Court has upheld the law, the IRS will now have to come up with specific rules regarding health insurance non-discrimination.
“Hopefully when the IRS issues regulations on health insurance non-discrimination they will relax some of the rules in the Affordable Care Act, such as the fines,” says Goldstein. “In the meantime, every business needs to be reviewing their health insurance to see if they are discriminating in favor of the owners and top paid employees.”
And it isn’t just businesses that will be penalized. According to the TIGTA audit report, an annual excise tax will be imposed on health insurance providers whose written net premiums exceed $25 million. It’s based on market share, with the total industry fee starting at $8 billion in 2014 and rising to $14.3 billion in 2018 and an indexed amount after that. And if an insurance provider fails to file their premiums report, they will be assessed a penalty of $10,000 plus the lesser of $1,000 times the number of days late or the amount of the tax imposed for which the report was required. This tax does not apply to employers who self-insure their employees or certain government entities. This becomes effective after December 31, 2013. And of course, the American way is to pass on any tax increases as well as additional administrative costs to customers.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitterat BLTaxpertise and at Facebook.