Your Money: Death, taxes and the Affordable Care Act
January 31, 2014
While my last article focused on the immediate 2013 tax consequences of the Affordable Care Act, the .9 percent and 3.8 percent Medicare Surcharge and the increased threshold for medical expense deductions, the news for 2014 shifts from merely a tax issue to an overall health care issue.
Believe me, when I spent years studying accounting and sitting for my CPA exam, I never thought I’d be in the insurance business, but here we are, and it appears we’re moving forward. The law can be looked at in two parts, individuals and small businesses. While the specifics of both in terms of the actual tax forms are still works in progress, we do know many generalities.
Starting in 2014, most U.S. citizens will be required to carry insurance, barring financial hardship, religious objections and a few other exceptions. If you cannot get insurance through your employer, you can find insurance privately through health insurance companies or through your state’s Medicaid options, if you qualify.
How does this affect your taxes? In order to figure out which programs you qualify for, you’ll need to know your 2012, and eventually, your annual gross income.
If your income is below 400 percent of the federal poverty line, you’ll get a subsidy to help pay for your insurance, and that subsidy will affect your taxes owed, or refund due, at tax time. If you choose not to carry insurance, you will be penalized the greater of $695 per person or 2.5 percent of your income starting in 2016, with lesser penalties beginning in 2014.
For truly small businesses, those with less than 50 employees who work on average 30 hours or more per week, there are no changes and no requirements to provide health insurance to your employees.
If you own a company or work for a company with less than 50 employees, those employees are still responsible on their own for health insurance, regardless of whether their employer provides it. The requirement to provide affordable health insurance to your employees only applies to those with 50 or more employees, and those larger companies will face a tax penalty of $2,000 per employee starting in 2015.
On the flip side, there is a credit for businesses with less than 25 annual full-time employees. If these small businesses choose to offer health insurance plans where they pay at least one half of the cost of the premium, they will receive a credit of up to 50 percent of the premiums paid. The credit is based on the number of employees and the average annual salary of their employees.
If you have more than 25 employees, your average salary is greater than $50,000, or you contribute less than 50 percent toward the employees’ premiums costs, then you receive no credit.
Sound confusing? While all new tax laws take a bit of getting used to, this one is far more significant and pervasive than most and will take a lot of effort to adjust to. While tax preparers are the last step in the process, you should also have a insurance agent on your team to help you fully navigate the system.
Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.