In this blog post, I will focus on looking at the tax effects of the Affordable Care Act rather than ATRA 2012. As most of you know, there are a tremendous amount of moving parts to the Affordable Care Act. There are a few things you should be considering from a tax perspective:
1) Affordable Care Act Premium Taxes and Fees of 3.8% go into effect on 1/1/2014 and are added on top of the premium. You should be talking to your broker about early renewal being offered to many small groups for December 1. If it is lower than the projected premiums on a 2014 renewal, you should consider acting now. While the tax goes into effect on 1/1/2014 for everyone, the dollars to pay the tax of course are a larger number when based on a larger number. If you can get a cheaper renewal at the end of 2013, your tax in 2014 will be lower.
2) Many organizations have sales people and consultants on 1099. Whether you should be doing that from an employment law perspective is another discussion for another day. However, what you need to know is that on 1/1/2014 – 1099 Contractors may not be included in your group health plan. You say no problem – they can just go buy in the exchanges and I’ll pay them the same amount of money I would have paid for the premium. Not so fast! The IRS just promulgated a ruling that you will only get the deduction if you include that money as taxable income in either their 1099 or W-2, but the individual may not take a deduction for paying the premium charged by the exchange. So, your participant just went from a non-taxable benefit to having to pay for the premiums with after tax dollars. If you are looking at a relatively modest early renewal at the end of 2013, you can keep your 1099 contractors on the plan and delay this tax effect for a year. If you don’t, you will want to bring these folks in as W-2 employees and or K-1 profits interest partners to preserve the pre-tax benefit of health insurance.
In my next blog post, we’ll look at any tax impacts from any deal to re-open the government and extend the debt ceiling.
IRS Circular 230 Disclosure:
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein.