How to Plan for Health Care Reform in 2013 and 2014 and Avoid Penalties

by Adam Minow, CPA

ImageIn the coming months, many Americans will need to make a decision regarding their health care insurance.  This decision is being prompted by the Patient Protection and Affordable Care Act that President Obama signed into law in 2010, which is also commonly referred to as Health Care Reform or Obamacare. Individuals who do not obtain health insurance coverage by March 31, 2014 may face penalties of up to 1.0% of their income in 2014 (the “Individual Mandate”).  Those penalties increase to up to 2.5% of income in 2016.  The Individual Mandate generally applies to self-employed individuals, unemployed individuals and individuals who are not already covered by another qualifying plan, including employer-sponsored plans, Medicare and COBRA.

While small businesses with fewer than 50 full-time equivalent employees (“FTEs”) are generally exempt from providing health care insurance coverage to their employees, various provisions of the Affordable Care Act require small businesses to notify their employees of the Individual Mandate.  Also, in 2014, only businesses that purchase insurance through the Small Business Health Options Program (“SHOP”) Marketplace will qualify for small business health care tax credits of up to 50% of the premiums employers pay towards their employees’ health insurance.  Small businesses with fewer than 25 FTEs may qualify for this credit.  Large businesses employing more than 50 FTEs will also have to make decisions concerning the health care benefits they offer to their employees, but those requirements do not come into effect until 2015.

Taxpayers should pay particular attention to their income in 2013 and beyond.  The Net Investment Income Tax and Additional Medicare Tax went into effect on January 1, 2013.  These new taxes have the potential to increase individual income taxes by a total of 4.7% in part to fund Health Care Reform.  Further, individuals with income below certain thresholds (such as $94,200 for a family of four) may qualify for the Premium Tax Credit.  Taking strategies to reduce or delay the recognition of income, including obtaining long-term capital gains treatment, contributing to a pension plan, increasing business depreciation through capital investment and providing health care coverage to your employees, may be valuable strategies for small business owners to reduce their overall tax burden in the era of Health Care Reform.

The following five news articles describe in greater detail some of the tax provisions and regulations individuals and businesses must start to comply with under Health Care Reform.

CNN Money Obamacare tax guide for individuals

CNN Money Obamacare tax guide for businesses

Entrepreneur Magazine – Obamacare 101: How Business Owners Can Prepare in 2013

The Street – 5 Tax Impacts of Obamacare

Full List of Obamacare Tax Hikes – Americans For Tax Reform

The following government websites also offer valuable information:

https://www.healthcare.gov/

http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-Home

http://www.dol.gov/ebsa/healthreform/

Health Care Reform is still in its infancy.  We already see some of the challenges to rolling out this massive legislation.  Over the coming months and years, Health Care Reform will continue to mature.  There are certain to be developments on nearly every aspect of this law including penalties, tax credits, subsidies, coverage options and how business is transacted in the health insurance Marketplace.  Please stay tuned to www.minowcpa.com for more updates as the story unravels.

The information discussed above is a highlight of a very complex set of laws and may not directly apply to your unique tax situation.  Please contact your CPA if you would like assistance to evaluate your business’ compliance with Heath Care Reform in order to avoid penalties and evaluate opportunities to obtain tax credits and subsidies

IRS Circular 230 Disclosure: To comply with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained herein (including any attachments), unless specifically stated otherwise, is not intended or written to be used, and cannot be used, for the purposes of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter herein.

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The Grady Firm attorneys specialize in helping businesses grow and succeed through employment, business, immigration, and intellectual property law advising for clients in California. In addition, we help foreign entrepreneurs establish a US presence and obtain the appropriate visas for their owners and employees. WE PROVIDE THE FOLLOWING BUSINESS SOLUTIONS: BUSINESS ADVISING: Business formation, contract drafting, coaching/advising, succession planning, lease review, and contract negotiation. EMPLOYMENT LAW: We teach employers how to become compliant with California employment law, draft Employee Handbooks, and providing sexual harassment training. We also help resolve disputes between employers and employees regarding wage and hour, discrimination, and harassment issues. IMMIGRATION: We help build business work forces and reunite families by preparing visa, Green Card, and citizenship applications based on family relations, employment, and investment. INTELLECTUAL PROPERTY: trademarks, copyright The Grady Firm has offices in Beverly Hills and San Diego, California; and serves clients remotely from across the globe. Our attorneys are licensed to practice immigration law in all 50 states. Learn more about us at www.gradyfirm.com.

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