Starting in 2014, businesses that have 50 or more workers that don’t provide health care coverage and have at least one full-time worker who receives subsidized coverage in the health insurance exchange will have to pay a fee of up to $2,000.00 per full-time employees. The firm’s first 30 workers would be excluded from the fee.
Health Insurance Exchanges were created as part of the Affordable Care Act. These are a set of government regulated and standardized health care plans from which individuals may purchase health insurance eligible for Federal Subsidies. All exchanges will be fully operational in January 2014. These exchanges are intended to help insurers comply with consumer protections and to compete in cost effective ways. The other intention is to facilitate the expansion of insurance coverage to more people. It is important to note that exchanges are not insurers, but they do determine the insurance companies that are allowed to participate in them. These exchanges are operated by States.
The open enrollment period for these exchanges begins in 2013. The theory is that these exchanges will allow individuals and small businesses to benefit from the pooling of risk, market leverage, and economies of scale that large businesses currently enjoy. In addition to the pooling of risks, Exchanges will help individuals and small employers shop for, select, and enroll in high quality, affordable private health plans that fit their needs at competitive prices. These exchanges will then help individuals to receive tax credits or coverage through other Federal or State health care programs.
According to recently released Treasury Regulations, even though the health care mandate for small businesses doesn’t go into effect until 2014, a business could be subject to the health care provision, if during, 2013 they average 50 or more full-time equivalent employees. The Treasury Regulation gives the employer the choice to calculate their full time equivalent employee by averaging the entire 12 month period of 2013, or a consecutive six month period during the year.
The problem is that this Treasury Regulation was issued December 28, in the middle of the “fiscal cliff” drama, and it went unnoticed by most people. As a consequence many small business owners are not aware that the way that they structure their employees in 2013, could determine their status in 2014 under the new provisions.
To avoid the penalties mandated by the Affordable Care Act, many employers are taking drastic measures. Some employers are cutting their worker’s hours to make them part-time employees. Still others are converting their full –time employees to independent contractors. Under the health care law, independent contractors are not considered employees and don’t fall under the mandate.
The conversion of full time employees to independent contractors was confirmed by an estimate made in December of 2012 that said that 6.7% of all payroll checks written to employees, were written to 1099 subcontractors. That amount is more than double the amount from a December 2007 estimate. Due to the new health care regulations, that amount is expected to rise.
Wrongly classifying employees as independent contractors is a sore subject with the Internal Revenue Service. In 2011, the IRS vowed to crack down on companies that wrongly classified their workers as 1099 subcontractors. The reason for this hard stance by the Internal Revenue Service is that subcontractors notoriously do not pay their taxes, leaving the Treasury Department holding the bag in a majority of the cases.
If nothing else, the increase in independent contractors could trigger more audits of small businesses, and not only cause the employer to pay back payroll taxes, but they could be penalized under the health care mandate for not classifying the workers as full time employees.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, and Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle
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