By Fima Sklyar, CPA with K&A
The starting gun has fired on healthcare reform.
Businesses of all sizes need to evaluate their situation, consult their financial and tax advisors and take steps to prepare for the changes.
The core of the bill for employers is this: beginning in 2014, employers that have 50 or more workers will be required to offer health insurance to their employees or incur a fine. If any worker gets coverage that is subsidized by the federal government, the employer will owe a $2,000 penalty for every full-time employee on the payroll.
Employers with 100 employees or fewer will be able to buy health coverage for their employees under the Small Business Health Options Program (SHOP) Exchanges, which will be run by state government agencies or nonprofits.
Smaller employers (those with 25 employees or less) can get a phased-in tax credit based on the business’ contribution to payment of employees’ health insurance premiums.
The entire tax and financial industry is still parsing the 13,000+ pages of the new law and related regulations. So there are few concrete answers now.
But here are some things business owners should starting thinking about today, as you start to plan for the 2012 deadlines.
Should you change status to become an S Corporation?
Assess your type of legal structure. Are you a C Corporation, an S Corporation, an LLC or a partnership?
Because of the way S Corporations are structured, they have some advantages within healthcare reform that you might want to explore.
The law calls for an additional 3.8 percent tax on passive income – that’s income from rental properties, interest and dividends, and royalties and annuities. But S Corporations are exempt from this requirement.
We predict a movement for owners of LLCs and owners of partnerships to change their status and become S Corporations. Certain types of entities are not eligible to make the switch, so check with your advisors about your options.
Make hiring decisions judiciously.
The relevant cutoffs for businesses are the thresholds of 25 employees and 50 employees.
Businesses with 25 employees or less might be eligible for a phased-in tax credit based on the company’s contribution to employees’ health insurance premiums. Companies with 50 or more workers must offer employees health insurance.
Obviously many factors influence whether or not you want to expand your roster – and if it’s time to grow, it’s time to grow. But if you’re right on the edge of one of those thresholds, you’ll want to consult your tax advisor or CPA to create the best plan moving forward.
Assess the current insurance you offer.
Do you offer the minimum coverage as defined by the Patient Protection and Affordable Care Act?
According to final regulations, an employer-sponsored plan can be treated as affordable for an employee and related individuals if the portion of the annual premium the employee must pay for self-coverage doesn’t exceed 9.5 percent of the employee’s household income.
Prepare for the new reporting requirements.
Businesses will be required to report what they’ve paid for employees’ health insurance. The government will likely add a box to the W2 and 1099 forms to accommodate this.
Make sure your accounting and administrative processes are in order, so that you’re prepared to accurately track and report this information.
Estimate your costs and decide whether or not you can pass those costs along.
Estimate additional costs over the next five years.
As a business owner you need to evaluate your own situation: should you pass this cost to your customers, or do you need to eat those costs? Can you initiate different deals with your vendors? Can you split the costs with your employees, or would that harm your talent retention?
The bottom line: it’s time to act.
Rest assured that the law does not affect 2012 and will have only a small impact in 2013. The majority of the provisions go into effect 2014.
But you need to start planning now.
We’re all in the early stages of deciphering what the many provisions mean for businesses of all sizes. As we dig deeper, we’ll offer some more detailed recommendations regarding your strategy going forward.
Make your CPA and financial advisor your partner, working together to boost the vitality of your business to secure your future.
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Fima Sklyar, CPA, is a Partner at Kellogg & Andelson, responsible for managing the Audit Department. Sklyar has extensive experience in the non-profit and healthcare industries, focusing primarily on mid-size businesses. His financial and accounting technical capabilities ensure clients obtain a value-added benefit allowing them to capitalize on current accounting and tax business opportunities.
With expertise in public accounting, Sklyar has provided services to businesses in operations management; organizational design and development; efficiency and performance management; strategic planning and audit and accounting services.
Sklyar is member of the American Institute of Certified Public Accountants (AICPA) and California Society of CPAs. He earned his B.A. in Business Economics, with a Minor in Accounting from the University of California, Los Angeles.