|January saw major changes to the US healthcare system and small business owners are some of the most affected. From tax breaks to penalties, companies from California to New York are feeling the crunch.
Rules for Single-Person Businesses
The Affordable Care Act essentially says that everyone must have health insurance or pay a fine. Entrepreneurs and sole proprietors fall under that Act’s individual mandate which states that all citizens must have
health coverage. There are a minority of individuals who may be exempt from penalties. This includes those from specific religious backgrounds and individuals who would experience an economic hardship due to annual premiums.
Since 2010, many small businesses have been eligible for a tax break if they cover a certain percentage of their employer’s health insurance. In order to receive the full credit of 35%, a business must have 10 or fewer full-time equivalent employees. Additionally, these employees must average salaries of less than $25,000 per year. Businesses with the equivalent of 25 full-time employees receive the tax break only if they cover at least 50% of employee healthcare cost. Unfortunately, these tax credits are only available for a maximum of five years. A business owner with 25 or more full-time equivalent employees with salaries that average $50,000 or more are not eligible for any credit.
Minimum Essential Coverage
According to the Wall Street Journal, employers must provide employees insurance that conforms to the Affordable Care Act’s minimum essential coverages. Additionally, the coverage must be reasonably priced meaning it may not exceed 9.5% of employee’s total household income. Businesses that cannot provide qualifying coverage may direct their employees to subsidized market and must pay a penalty of $2000-$3000 per employee.
The good news for small businesses is that the penalties do not kick in until after the 30th full-time employee. Part-time employees are not required to be offered insurance.
For more information about the affordable care act visit hhs.gov.