Small businesses (companies with less than 50 employees) are largely unaffected by the recently passed health care reform legislation.
Today, we will answer the 10 most frequently asked questions from small businesses regarding health care reform.
If we have left out any important FAQs, please ask them in the comment section and we will add them to the post. Thanks!
- What is the small business tax credit and how do I know if I am eligible? Effective January 1, 2010 tax credits are available to qualifying small business that contribute to their employees' health insurance costs. To be eligible for the tax credit, your company must have less than 25 employees and average salaries less than $50,000. To learn more about the small business tax credit, please see "Small Employer Health Care Tax Credit - How Does it Work?"
- How do I calculate how many FTE employees I Have? To calculate the number of FTE employees you have, add the number of full-time employees (i.e. those working 40 or more hours per week) with the full-time equivalent part-time employees. The number of full-time equivalent part-time employees is determined by totaling the hours worked by part-time employees and dividing it by 2,080.
- Am I required to offer health insurance? No. Small businesses with less than 50 employees are not required to offer health insurance under the new legislation.
- Will I be penalized for not offering insurance to my employees? No. There are no tax penalties for companies with less than 50 employees that do not offer insurance.
- If I do not offer health insurance, will my employees be required to buy it and will there be any government help? Yes. Beginning January 1, 2014, all individuals must purchase "qualified" health insurance. If they do not, they may be subject to tax penalties of up to $695 per year. Government subsidies will be available to individuals with incomes up to 400% of the poverty line ($88,200 for a family of four) to help pay for individual health insurance.
- What is the insurance exchange and how will I be able to use it? By 2014, each state must create an American Health Benefits Exchange and a Small Business Health Options Program Exchange. These exchanges will provide a place where individuals and small businesses can purchase coverage that meets the federal requirements. Small business owners are not required to purchase coverage through the exchanges.
- How will health care reform affect my health insurance if I am self employed? Beginning in 2014, self-employed individuals will have access to the small group market and guaranteed-issue individual health insurance policies. Self-employed individuals will still be able to take tax deductions for premiums on their individual 1040.
- What if my business grows to more than 50 full-time equivalent employees? Small business owners with more than 50 employees that do not provide qualified health insurance are required to pay a tax penalty for employees that buy individual insurance and receive a government subsidy. To learn more about how health care reform affects large companies (more than 50 employees), please see "How Health Care Insurance Reform Affects U.S. Employers and their Employees."
- Will I be required to change my health plan in 2014? No. The new health care reform bill specifically allows a small business owner to keep their company's current health insurance as a "grandfathered" plan. "Grandfathered" plans will not be subject to new health insurance mandates until the plan is altered.
- Are there new reporting requirements for health benefits for my business? Yes. Beginning in the 2011 tax year, you will be required to report the "aggregate cost" of your employer-sponsored coverage on an employee's W-2. These reported amounts will not be taxed. To learn more about new W-2 reporting requirements, please see "How Health Care Reform Affects Annual W-2 Reporting."
Do you have any additional questions?
For anyone who is interested, Major Garret (Contributing Editor, Fox News) posted a
copy of Senate Finance Committee Chairman Max Baucus's proposed health care reform bill. View a full copy of the bill
here.
Below, I have excerpted the part of the bill that is pertinent to
HRAs,
FSAs and
HSAs.
"17
FRAUD, WASTE, AND ABUSE
Fraud, waste, and abuse in Medicare and Medicaid would be reduced by a series of provisions to prevent and deter wasteful or fraudulent activity as well as assist in the identification and prosecution of such activity once it has occurred. These policies include: a new enrollment process for providers and suppliers, including an application fee; data matching and data sharing across federal health care programs; increased civil monetary penalties; increased authority to suspend payment during creditable investigations of fraud; and new procedures to disclose and repay overpayments.
REVENUE PROVISIONS
High Cost Insurance Excise Tax. An excise tax of 35% would be levied on insurance companies and insurance administrators for any health insurance plan that is above $8,000 for singles and $21,000 for family plans. The tax would apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market. The tax would apply to the amount of the premium in excess of the threshold. The threshold would be indexed for inflation, and a transition rule would raise the threshold by 20%, 10%, and 5% for the 17 highest cost states for the first three years.
Increasing Transparency in Employer W-2 Reporting of Value of Health Benefits. The proposal would require employers to disclose the value of the benefit provided by the employer for each employee¡¦s health insurance coverage on the employee¡¦s annual Form W-2.
Limit Health Flexible Savings Account Contributions. Contributions to health Flexible Savings Accounts (FSAs) would be limited to $2,000 per year under this proposal. Eliminate Exclusion for Employer Part D Subsidy. The proposal would eliminate the exclusion from gross income for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees.
Standardize the Definition of Qualified Medical Expenses. The definition of qualified medical expenses for Health Savings Accounts (HSAs), Flexible Savings Accounts (FSAs), and Health Reimbursement Arrangements (HRAs) would be conformed to the definition used for the itemized deduction. An exception to this rule would be included so that amounts paid for over-the-counter medicine with a prescription still qualify as medical expenses.
Increase the Penalty for Use of Health Savings Account Funds for Non-qualified Medical Expenses. This proposal would increase the additional tax for Health Savings Account (HSA) withdrawals prior to age 65 that are not used for qualified medical expenses from 10% to 20%. "
