What Does “Obamacare” Mean To Small Businesses And Individuals? – CPA In Indianapolis Explains The Tax Implications

As a small business owner and entrepreneur, more than anyone, you understand the competitive nature of the market and the fact that the rules are a part of the game.  And you also know the importance of being able to adapt and use the rules to your advantage when possible.  So, when it comes to the Affordable Care Act (ACA) – aka “Obamacare” – it’s very important that you know the rules and react accordingly.

Whether or not you are an advocate of the health care bill, it has created a new playing field.  And for you, the small business owner, some of the most decision-relevant aspects of ACA are the tax credits. While providing healthcare for your employees may not have been feasible in the past, these tax credits are designed as an incentive to make it more affordable.

So, the key question – if you’re not already offering health care – is whether or not your tax credit will be enough to start offering it.  This is a unique decision that you’ll have to make for your business as an entrepreneur.

So here are the rules. First, if you have less than 25 employees and wages on average are less than $50,000, then you must pay at least 50% of the health care premiums for your employees.  In this case, you’ll receive a tax credit of up to 35% on your contribution to those premiums in 2012.  The full 35% tax credit will be available if you have less than 10 full-time employees and wages on average are less than $25,000.  This maximum credit amount will increase to 50% in 2014.

However, there is a catch, all of these credits stop in 2016!  In other words, these credits will be available for another 4 years, and then they’ll disappear.  This is very important for planning purposes.

In the meantime, another aspect of the plan is the development of state health care exchanges, which will start showing up in 2014.  With the risks being spread among these new state exchanges, you’ll be in a much better position to negotiate lower premiums.  The idea is that these new exchanges will help you to afford health care for your employees once the tax credits are gone.

Now, as a small business owner, you also want to stay in-tune with the needs of your employees.  Not to mention, you are an individual yourself.  And just as the rules have changed for small businesses and employees, there are also new rules for individuals and families.

Basically, within certain income thresholds, you will pay an additional tax if you have not obtained health insurance for yourself.  With that said, here are some key points to remember for individuals and families when deciding to purchase health insurance:

  • The tax will be implemented in phases from 2014 to 2016. The minimum tax will be  $95 per person in 2014, and then it will increase to $695 per person by 2016
  • The $695 per-person tax will only be assessed to those who make $9,500 to $37,000 annually. If your income is less than $9500, you’re exempt.  But if you make more than $37,000 annually, your taxes will be based on the following formula…
  • The formula is a 2.5% tax on any household income above $9500 for singles and $19,000 for couples – these are the thresholds at which you are required to file a tax return. So if you make a significant amount of money, these taxes can be highly expensive.
  • However, you will never pay more than what it will cost to purchase a “Bronze” health insurance plan through your state exchange. These plans will costs approximately – according to the CBO – between $4,500 to $5,000 per person and $12,000 to $12,500 per family in 2016.

As you can see, over the next few years, it’s important for small business owners and individuals to be aware of how the rules are changing…and how to apply them to their specific needs.  For more assistance and clarification of the rules associated with ACA, you may call Larry Marietta, CPA at 317-216-1040.



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