Small businesses may be ringing in the New Year with a dose of optimism, as well as a reality check. Taxes and fees associated with ObamaCare are beginning to take effect, and the countdown begins to 2014, when many small businesses across the country will have to decide whether to start offering employer-sponsored health insurance or pay a penalty.
Curtis Dubay, senior tax policy analyst at the Heritage Foundation, said on January 1, several tax increases went into effect that stand to potentially impact smaller companies, depending on annual income levels.
The medical device surtax of 2.9% became law, although Dubay said the vast majority of medical device manufacturers are larger companies. Another potential hit to entrepreneurs is the new 3.8% surtax on all capital gains and dividends. An increase to the Medicare payroll tax is also likely to pinch small business, according to Dubay.
“This further compounds the damage from the fiscal cliff,” Dubay said. “Now the total top income tax rate is 39.6%, plus that uncapped 3.8% on every dollar of income. President Obama has said he wants to return to the rates we had under the Clinton Administration, but under Clinton the Medicare tax was 2.9%.”
Now the big tax to watch for is expected to come down the pike in the next 362 days—a penalty for employers with more than 50 workers who chose not to offer coverage to their workers.
Edmund F. Haislmaier, senior research fellow on Health Policy Studies at the Heritage Foundation, said the tax will impact different industries in different ways. Small businesses in the food service and hospitality industry will be more likely to pay the fee of $2,000 per worker annually for failing to offer coverage to workers, because they rely more heavily on low-wage employees.
“They will drop coverage or not offer coverage because the penalty costs will be less than the insurance would cost,” Haislmaier said.
For example, for a worker making $10 per hour, if you shift the costs to them for health care, their compensation would drop to about $7.50, the national minimum wage. Or if the business absorbs the costs, that hourly rate goes up to about $13 an hour, he said.
Another industry to watch will be the nursing and home health-care sector, which relies on low-wage workers as aids, often making between $9 and $12 hourly.
Haislmaier said small businesses are also waiting on regulations from the Treasury Department on what will actually be considered adequate coverage. That $2,000 fee will also be charged for companies not offering coverage that is up-to-par with the Affordable Care Act’s standards.
“That is going to determine how much you have to upgrade your [health] plan for workers,” he said.
The companies to be affected by the new requirements will be those right above and below that 50-worker threshold, he said.
“This isn’t an issue if you have 10 employees, or if you have 200 employees,” he said. “It’s when you are running something with 40 employees that is where you have to be careful, because there are significant costs for crossing the threshold.”