Several parts of the Affordable Care Act have been enacted over 2014 that may well affect how small-business owners file their taxes this year. Because of the debate and concern over how exactly this law will impact business owners there has been a lot of misinformation (well-meaning and otherwise) on the internet.
This means business owners, from the self-employed to those with hundreds of employees need to learn the truth about how this law will impact their business – specifically when they file taxes this April. To help with this, here is some basic information for business owners of all types:
An “Individual Mandate” went into effect at the start of 2014 that applies to self-employed freelancers, entrepreneurs and consultants. This mandate requires such individuals to have at least minimum coverage health-care. If you do not, you have a few alternatives:
· File for an exemption of healthcare coverage if you qualify
· When filing your 2014 Federal return, you can also include a “shared responsibility” payment.
This basically leaves all self-employed professionals in one of the following categories:
Self-Employed Professionals with basic healthcare coverage
If you already have healthcare coverage that meets or exceeds the required minimum standard, all you need to do is check the box to indicate you do. The IRS’s website provides a full list of coverages that qualify for the required minimum coverage.
If you do not have coverage that meets these standards you can either apply for an exemption or make the shared responsibility payment mentioned above:
Self-Employed Professionals without coverage who qualify for an exemption
If you qualify for an exemption, you can use Form 8965 when filing to indicate this. There are a few qualifying scenarios for exemption status to be granted, such as:
· You had coverage for the majority of the year (without for 3 months or less)
· The cost of health insurance would exceed more than 8% of your wages
· If you lived outside of the US proper for at least 330 days over the span of twelve months
Some specific exemptions will require you to go through the Health Insurance Marketplace and others will simply need to be claimed at the time you file your return. The IRS website contains a more complete list of exemptions and how to claim them.
Self-Employed Professionals without coverage who do not qualify for an exemption
If you do not have the required minimum coverage and do not meet any of the qualifications listed on the IRS website for an exemption, you’ll have to file an additional shared-responsibility payment when you file your 2014 returns. You have two options for how to do this in 2014:
· You can pay 1% of your household’s income over the return threshold for your return filing status.
· Pay a flat rate of $95 for each adult and $47.50 per child with a maximum total payment of $285 for each family.
For more information on making your shared-responsibility payments and options available to you, please visit the IRS website and the US Department of Treasury’s fact sheet on the Individual Shared Responsibility Provision.
All self-employed contractors that file individually and make more than $200 annually (or $250,000 if jointly filing with a spouse) must also pay a Medicare tax. This tax is .9% and more information is available on the IRS’s website. Additionally, entrepreneurs with a “moderate” income as the IRS considers it can actually receive tax credit if they purchase healthcare coverage through the Marketplace during open enrollment periods.
Business Owners with employees other than themselves
If you are a small business owner and you now find you need to provide health insurance for your employees as required by the new health care law, you’ll need to purchase them coverage via the Small Business Health Options Program (SHOP). This program establishes online coverage “exchanges” designed to provide small business owners health insurance for their employees.
The IRS determines who can use these SHOP exchanges and what benefits and premiums apply to businesses based upon the number of Full-Time Employee Equivalents (FTEs). This number does not include seasonal or contract employees or the business owner themselves. Additionally, small business owners may receive credits depending on the average wage of their FTEs.
Small Business Owners with 25 or Fewer Employees
Tax credits for small business owners with 25 or fewer employees are available. The best credits are for businesses with 10 or fewer FTEs that make less than an average of $25,000 annually. Think of it this way: the smaller your company is, the bigger tax break you will be eligible for. As of the start of 2014, if you have 25 or fewer employees you may be eligible for credits all the way up to 50% of your contribution towards employee insurance premiums. This amount is 35% for NPOs and tax-exempt businesses.
However, your company must qualify to receive the tax breaks. This first and foremost means, as stated earlier, purchasing insurance through a SHOP exchange. But it also means the following:
· You must use the SHOP exchange for the state you are in.
· You must be paying at least 50% of the premiums for your employee’s healthcare insurance.
· The average wage of all FTEs must be less than $50,000 annually.
SHOP has a tax credit estimator you can use to determine what credits your business may be eligible for when you file. Such credits can also be retroactively claimed for any year you’ve purchased health coverage through a SHOP exchange since 2010. When filing, use IRS Form 8941 and follow the directions carefully.
Small Business Owners with 25 – 50 Employees
Businesses with up to 50 FTEs may also use SHOP exchanges to purchase health insurance coverage for their employees. While you are not mandated to use the SHOP exchanges like larger companies, you are also not incentivized with tax credits the way smaller businesses are.
Business Owners with more than 50 Employees
All companies with more than 50 employees are, as of the start of 2014, mandated to provide health insurance coverage to at least 95% of their FTEs and their dependents. If they fail to do so, they will have to pay penalty fees. Additionally, even if the employer covers this 95%, they may still have to pay penalties if even a single employee receives a tax credit for having to purchase their own health insurance through a state run SHOP exchange.
For the year 2014, the penalty, or Shared Responsibility Payment would be determined by multiplying the number of FTEs you employee by $2,000. The first 30 FTEs are exempt, however. That means, for example, that a company with 70 employees would only pay $80,000 instead of $140,000 (40 FTEs x $2000, not 70 FTEs x $2000).
Still have questions?
Please call us for a free appointment with Miami business attorney Yoel Molina in our Miami office at 305-548-5020.
· Health Insurance Marketplace Call Center: 1-800-318-2596 (Available 24/7)
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