Like it or not, the U.S. Supreme Court has ruled and the so-called “Affordable Care Act” (ACA) is now the law of the land – and the Tax Code. Not quite hitting home as yet is the full impact the ACA’s 20+ tax hikes will have not only on large businesses, but on all feedlot operations, their owners, the self-employed, and in fact, every individual.
Affecting businesses, at least those with more than 50 employees, is the so-called “Employer Mandate.” Under ACA, all businesses with more than 50 employees are required to provide employees with health insurance or face an “assessable payment,” after December 31, 2013.
Already on the books, is the “Small Employer Health Insurance Tax Credit.” Employers with fewer than 25 employees can enjoy a tax credit, a direct reduction of their tax bill as opposed to a deduction that reduces the income upon which the tax bill is computed, of as much as 35 percent of the health insurance premiums they pay for their employees. Of course, the average annual wages of a feedlot, stocker or cow-calf operation’s full-time employees must be less than $50,000.
Although this tax credit is scheduled to increase to 50 percent for small business employers after 2013, only those operations with fewer than 10 full-time equivalent employees and average salaries of $25,000 or less are eligible for the full credit.
The impact on sole-proprietors with no employees will be much like the impact on individuals. For people in this group, the crux of the 2014 rollout is the individual mandate, which requires all U.S. citizens and legal residents to have health coverage or pay a penalty. The top penalty for individuals, once fully phased in, for not having insurance is $695 or 2.5 percent of income – whichever is greater.
Any feedlot operation or business that rewards its owners, shareholders, or employees, with health insurance coverage that exceeds a threshold amount established by our lawmakers, will face a whopping 40-percent excise tax beginning in 2018. Also remember that, regardless of size, no feedlot can purchase just any old insurance to avoid the penalties. The operation must provide so-called “minimum essential,” coverage covering 60 percent of the cost of benefits, and “affordable” coverage, that is, not exceeding 9.5 percent of the employee’s household income.
The ACA required each state to establish both an American Health Benefit Exchange, and Small Business Health Options Program (SHOP Exchange), to provide qualified individuals and qualified small business employers access to health plans. Starting in 2014, sole proprietors and one-person businesses can turn to exchanges for individuals. Companies with as many as 100 workers may turn to Small Business Health Options
Programs. Both have a similar approach to bringing down costs: increasing the size of the insured pool to spread the risk.
In addition to a hike in the Medicare Payroll Tax on self-employment income (from 2.9 percent to 3.8 percent), a “unearned income Medicare contribution” tax will impose the new 3.8 percent rate on so-called “net investment income.” That includes interest, dividends, annuities, royalties, certain rents and other “passive” business income. Fortunately, only individuals with incomes in excess of $200,000, and married couples with incomes greater than $250,000 will be subjected to the 3.8 percent tax.
There are also a number of new restrictions on the healthcare programs used by so many small business owners – and their workers. Last year, sole proprietors and owners of small feedlot, stocker and cow-calf operations or businesses were no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).
What’s more, an increased, additional tax on non-medical early withdrawals from an HSA, from 10 to 20 percent, put them at a disadvantage with IRAs and other tax-advantaged accounts, which remained at 10 percent.
Fortunately, it is not all bad news. Because the law requires all individuals to have health insurance, the smallest businesses, those with fewer than 50 employees, will be able to lure good workers away from larger companies. And while there is the possibility that lawmakers will completely or partially repeal the ACA, planning to cope with the many, already in place tax hikes, as well as those scheduled in the years ahead, is strongly advised.