The Patient Protection and Affordable Care Act was passed by Congress and signed into law back in 2010, but many of the provisions are just starting to be implemented, and this could impact small business owners in a big way.
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Here’s a list of new health-care issues and medical tax law changes every small business owner needs to know:
No. 1: Contributions to a Health savings account (HSA) for 2013 are $3,250 for single and $6,450 for family coverage. For 2012, the limit is $3,100 for single and $6,250 for family coverage. Remember you must be a participant in a high-deductible health plan meaning the deductible for 2013 must be $1,250, up from $1,200 for single and $2,500 for family, an increase from $2,400 in 2012.
No. 2: A new Additional Medicare Tax of 0.9% goes into effect starting this year and applies to employee wages (and your self-employment income) that exceed a threshold amount based on an individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. Your payroll processing company is likely attuned to this new issue. If your payroll however, is prepared in-house, make sure your staff is aware of this tax law change.
No 3: And don’t forget, beginning in 2012, employer payments of health insurance for employees must be shown on Form W2 at year end. If you are a more than 2% shareholder in an S Corp, this goes for you as well. Gather those numbers and provide them to your payroll processing company. This also affects the W2s that are issued in January 2013, so if you’ve already mailed out W2s without with this information, you may send corrected copies.
No 4: Beginning in 2013, there are new rules about the amount that can be contributed to a Flexible Spending Account (FSA). Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules.
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No. 5: For tax years 2010 through 2013, the maximum Small Business Health Care Tax Credit is 35% for small business employers and 25% for small tax-exempt employers such as charities. This credit is geared toward employers who provide health insurance for low to moderate income employees. You must have 25 or fewer employees and total annual wages paid to all employees must not exceed $50,000. The employer must contribute 50% or more toward payment of the insurance premiums. File IRS Form 8941 to obtain the credit. Beginning in 2014 the credit will be expanded.
No. 6: Beginning in 2014, your business must offer a health insurance plan if you hire more than 50 employees. The business is not required to pay for the plan but the product must be available to your employees.
No. 7: If your legal form is corporate, you must now file form 1125-A to report cost of goods sold. You will also be required to file Form 1125-E if the corporation deducts officer compensation and your gross receipts for the year are $500,000 or more.
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 Twitter at BLTaxpertise and at Facebook.