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The Not-So-Affordable Care Act
Navigating healthcare has never been so complicated, but has some benefits to leverage.
Lawmakers are attempting to repeal it, businesses are suing to prevent its implementation, and local governments and unions continue their efforts to be exempted from the massive and controversial, “Affordable Care Act” (ACA), the health care “reforms” enacted in 2010. More recently, the Obama Administration has announced that it is postponing for a full year, until 2015, the Act’s “Employer Mandate,” the requirement that employers with more than 50 employees provide health insurance to their employees or face stiff penalties.

Fortunately, while everyone seems to be experiencing difficulties understanding the impact of and the potential pitfalls of the ACA that await, many within the automotive salvage and recycling industry appear to be overlooking tax credits and other sweeteners for employers that were created as part of the ACA and already in effect.

The Small Business Health Tax Credit

The Internal Revenue Service is encouraging small businesses to explore and, if qualified, claim a unique health insurance coverage tax credit. It was created for eligible small businesses that either maintain their current health insurance coverage or begin offering health insurance coverage to their employees.

Small employers (those with no more than 25 employees and average wages below $50,000 annually) are eligible for this federal tax credit, a direct reduction of the automotive salvage or recycling operation’s tax bill, for up to 35 percent of the amount spent on health insurance for their employees. The full amount of the credit is, however, available only to an employer with 10 or fewer full-time equivalent employees (FTEs) and whose employees have average annual full-time equivalent wages from the employer of less than $25,000.

Self-employed recyclers, including partners and sole proprietors, 2% shareholders in S corporations, and 5% owners are not treated as employees for purposes of the Small Employer Health Insurance Credit. In fact, a special rule prevents sole proprietors – and their family members -- from receiving the credit.

The Notice

Every employer subject to the Fair Labor Standards Act (FLSA) must provide a written notice to employees beginning in October. The employer must provide both full- and part-time workers with a written notice about State Insurance Marketplace options and subsidies.

Employers with one or more employees who are engaged in, or produce goods for, interstate commerce must provide this notice. For many, a test of not less than $500,000 in annual dollar volume of business will also apply. The notice must be provided to each employee, regardless of plan enrollment status, or of part-time or full-time status. What’s more, the notice must be provided in writing in a manner calculated to be understood by the average employee.

Employer Responsibilities

Before the passage of the ACA, there was no federal requirement that employers offer health insurance coverage to employees or to their families. Today, new “Pay or Play” provisions in the ACA require employers with 50 or more full-time equivalent employees to offer qualified medical benefit plans to employees who work an average of 30 hours per week. Those rules will not be enforced until 2015.

The Federal government estimates that it will pick up $130 billion in Obamacare penalties over the next decade from businesses that either don’t provide employees health insurance or what the government considers to be “inadequate” health insurance. Fortunately, with the postponed “Employer Mandate,” automotive recycling and salvage businesses will have more time to plan.

That planning should consider the four strategies to reduce this upcoming burden: (1) the mandate does not apply to operations with fewer than 50 workers, (2) the mandate doesn’t apply to employees who work fewer than 30 hours, (3) the employer doesn’t have to offer or subsidize family coverage; and (4) rather than provide health insurance, an employer can pay a $2,000 per (full-time) worker fine.

However, despite a reported huge shift to part-time employment in January 2013, the law contains a 12-month “look back.” In deciding whether a worker is full-time or part-time on January 1, 2014 when the provision kicks in, the government will look at the average weekly hours worked in the previous year.

Plus, the IRS has already signaled that it will count “full-time equivalents,” when calculating the number of workers. In addition to full-time employees, large employers must count full-time equivalent employees determined by dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 120.

Skinny Insurance Coverage

The ACA authorized health insurance subsidies to qualifying individuals in states that created their own healthcare exchanges. Those subsidies trigger the employer mandate ($2,000 per employee penalty).

A number of employers are avoiding the ACA penalties by offering so-called “skinny” insurance plans that provide employees with minimum coverage. Minimum coverage such as preventive care but little else, qualifies as acceptable under the new healthcare “reform” law making an easy sell for insurance brokers.

Employers can avoid a $2,000-per-worker penalty by providing such policies, even though the plans often don’t cover basics such as surgery, X-rays, or prenatal care, let alone hospitalization. For some businesses, low-benefit plans costing as little as $40 to $100 per employee per month are an attractive alternative even though they could still face penalties, albeit less than the $2,000 per worker for opting out of Obamacare.

Health Insurance Exchanges

Starting on January 1, 2014, the ACA will require nearly every American to have health insurance whether through an employer, a government program, or by buying it directly. One option – state-based Health Insurance Exchanges – designed to make health insurance affordable and accessible for small businesses and the self-employed are supposed to be up and running.

While 33 states have opted out of creating “Health Insurance Marketplaces,” open enrollment for health insurance coverage through existing exchanges begins October 1, 2013 for individuals and employees of small businesses. Actual access to the marketplaces begins January 1, 2014 when tax credits will start flowing to help millions of people pay the premiums.

Under the original ACA, businesses in those non-participating states should have been free of the employer mandate. Last spring, without authorization from Congress, the IRS expanded those subsidies to cover states that refused to set up exchanges. Not surprisingly, lawsuits ensued arguing that the IRS has no legal authority to rewrite an “essential part of the law.”

“Free Choice” Vouchers

After 2013, employers offering minimum essential coverage through an eligible employer-sponsored plan and paying a portion of that coverage will have to provide qualified employees that choose not to participate with a voucher that can be applied to the purchase of a health plan through an Insurance Exchange. The value of the voucher would be equal to the dollar value of the employer contribution to the employer offered health plan.

Those who continue to go without coverage will have to pay a penalty to the IRS, except in cases of financial hardship. Fines will vary by income and family size. For example, a single person making $45,000 would pay an extra $1,125 in taxes when the penalty is fully phased in, in 2016.

Additional Taxes on High Wages Earners

To help pay for making health insurance affordable for small businesses and the middle class, the law included an increase in taxes for high earners. Specifically, the hospital insurance or “HI” tax rate has been increased by 0.9 percentage points on individuals earning over $200,000 ($250,000 for married couples filing jointly).

Beginning in 2013, a 3.8 percent surtax called an “Unearned Income Medicare Contribution,” was placed on the net investment income of anyone earning over $200,000 ($250,000 for a joint return). Net investment income includes interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). It should be noted that income “actively” earned by anyone running a small, closely-held business, is exempt from the unearned income surtax. But beware, income from the reserve accounts of pass-through business entities such as S corporations is considered “investment” income.

Summary

Whether because of politics or economic realities, the Obama Administration has postponed the date they will begin enforcing the requirement that employers of more than 50 workers provide health insurance from 2014 until 2015. An earlier announcement revealed that small businesses will not be able to access the health insurance “Marketplaces” until 2015, thus limiting the affordable options available. The so-called “Individual Mandate,” requiring all individuals to have health insurance remains however.

The implementation of many of the provisions of the Affordable Care Act – the requirement for employee notices be sent in October 2013, the tax credits available to small employers for health-care related expenses that started in 2010, along with the increase in Medicare payroll taxes that began in 2013 – are already a reality. The tax on high-cost “Cadillac” policies favored by the unions and many corporate executives, will not, however, go into effect until 2018.

Are you and your automotive salvage and recycling business ready? Planning ahead can only help you get a grip on the impact this will have on your business. 

Mark Battersby is a freelance writer. This article is for informational purposes only. Please check with an advisor for what your business is and is not entitled based on your company structure.

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