The Health Care Law and Your Business
The 2009 Affordable Care Act (sometimes called "Obamacare") included several provisions that affect large and small businesses. In general, the law encourages smaller employers to provide health care coverage for employees, and it penalizes larger employers who fail to provide health care coverage for employees. The encouragement for smaller employers comes in the form of tax credits for paying the cost of health care coverage; the penalty is imposed on larger employers who fail to provide coverage.
The provisions of the law go into effect over several years. Here is ahealth care law timeline showing when major portions of the law that affect businesses will go into effect.
Here are the most important changes you should know about for 2013:
Reporting Health Care Benefits on 2012 employee W-2 forms
Employers are required to include the cost of health care provided by the company on each individual employee's W-2 Form for 2012. This amount is NOT taxable to the employee.
Smaller employers, those who furnish fewer than 250 employee W-2 forms for 2012 taxes, are not required to comply with this reporting requirement because of the cost of compiling this information and making changes. At this writing (January 2013) it is not clear when smaller businesses will have to comply with this W-2 reporting requirement.
Tax Credits for Small Businesses Offering Health Benefits
Starting in 2010 and continuing through 2013, your business may be eligible for a business tax credit if you have fewer than 25 full-time equivalent employees and you provide health care benefits for these employees. The tax credit amount is up to up to 35% of employer-paid health insurance premiums, through 2013. The tax credit increases to 50% of eligible premiums in 2014.
To qualify for the health care tax credit:
- Your business must have fewer than 25 full-time equivalent employees (part-time employees are counted as a percentage of a full-time employee)
- The average wage of employees must be lower than $50,000, and
- The health insurance premium must be paid through a "qualifying arrangement" (it's complicated)
To apply for the credit, you file IRS Form 8941 with your business tax return, so if you haven't filed your 2012 business taxes, there's still time to apply for this health care tax credit. Check with your tax preparer.
New limit on flexible spending accounts
If your business has a flexible spending account as part of your health plan package, you must limit employee deductions for 2013 and beyond to $2500 per year. In the past there was no law that required a limit, but many employers imposed limits within their own plans. You will need to change your payroll accounting software to account for this limit. And don't forget to let employees know they can only deduct $2500 in "flex" money in 2013.