Health Care Reform Promises More Paperwork
Congress put the finishing touches on healthcare reform yesterday, paving the way for President Barack Obama's signature on the second of the two bills. For small business owners, the legislation promises lower rates down the line. In the short term, however, it will mean extra paperwork and probably a call to your accountant.
The so-called Reconciliation Bill approved on Thursdaywas drawn up to coax leery House Democrats to approve the Senate's original version of the health care bill Sunday. The original bill is the one Obama signed into law Tuesday. Here's what the new provisions – which Obama is expected to sign today – mean for you.
First, relax (a little): You don't have to scramble to scrap together health insurance for employees this year. Companies with 50 employees or more who don't provide health insurance won't start paying penalties to the Internal Revenue Service until 2014. If you have fewer than 50 employees, you won't pay penalties at all.
What are the penalties? The reconciliation bill raises them to $2,000 per worker (up from the original bill's $750) if anyone in the company relies on government subsidies to buy coverage. A company's first 30 workers are excluded, but two part-time employees count as one full-time one for purposes of penalty calculation. (A full-time worker is defined as one who works an average of 30 hours or more per week, calculated on a monthly basis.)
From 2010 to 2013, very small businesses that offer health insurance can pick up a tax credit to help cover the cost. Companies with as many as 25 full-time employees that pay average annual wages of less than $50,000 will receive a credit valued at up to 35 percent of the average premium for the small group market in their states or of their total contributions to a health care plan bought through a state-run exchange to be set up under the reform. (You'll receive whichever amount is less.) Businesses with fewer than 10 employees and average annual wages of less than $25,000 will pick up the maximum credit. In 2014, the maximum credit jumps to 50 percent.
Worried about switching plans to qualify for the credit? Leave it off this year's to-do list. You can claim the credit through 2012 with your current plan. In 2013, you'll have to buy your insurance through the state-run exchange to claim it.
Beginning in 2011, the government will create a simple cafeteria plan designed to help small businesses provide tax-free benefits to employees. This is meant to ease the administrative hassle for small businesses of sponsoring one.
One thing you may want to start preparing for this year is extra paperwork. Beginning in 2011, companies will have to start reporting on W-2s the value of the health plans they provide to employees. And as the government ramps up tax collection efforts to pay for healthcare reforms, in 2012 you'll have to report every single business-to-business payment of $600 or more to the IRS on a 1099.
In 2013, you'll pay more to offer prescription drug coverage to retirees – that's when the current tax deduction ends for employers who receive a federal subsidy for offering the coverage. (The Medicare Modernization Act of 2003 provided subsidies to companies to keep prescription drug coverage for Medicare-eligible retirees.)
Beginning in 2014, only the smallest firms in the construction industry (five employees or fewer) are exempt from fines for not providing health insurance. The law doesn't define "construction firm" – that's up to regulators.
Also on tap for 2014: If you've got high turnover of employees, the Reconciliation Act removes the penalties in the original legislation for imposing waiting periods before employees can enroll in coverage. It does set a cap on the waiting period, though: 90 days.
Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.