Business tax picture muddled by reforms

Health care reform kicks in for good in 2014, but this is the year that businesses have to keep meticulous records — because those records definitely will make a difference on next year’s tax returns.

The paperwork for tax credits based on premiums paid by companies has been in the works for a couple of years. But this year, businesses with more than 50 employees are being required to keep track of both full- and part-time employees, and their health insurance plans.

Accountants are accustomed to a myriad of tax-law changes every year, but the rules associated with the Affordable Care Act are particularly complex. Because the guidelines are just now being released by the Internal Revenue Service, many businesses are unsure of what the forms will look like or what proof they’ll need.

“It’s a can of worms,” said Doreen Merz, tax manager at Stockman Kast Ryan in Colorado Springs. “These ‘pay or play’ rules can be difficult for businesses to understand.

“Since ObamaCare, as it’s called, hasn’t come into play yet, we have purely ‘head knowledge’ of how 2014 is going to look. We don’t have any practical experience yet.”

The IRS has yet to release some of the reporting details as well, Merz said. But some things are certain: Businesses with more than 50 employees will have to carefully track employees’ health insurance choices and hours worked.

And, Merz points out, the guidelines for small and large businesses are different for health care tax penalties and credit than they are elsewhere in the tax code.

“Full-time means over 30 hours a week,” she said. “Small business is less than 50 employees, plus the part-time added up and averaged to see how many will equal a single FTE. That way, they make sure that employers can’t put everyone on part-time status and avoid the rules.”

Penalties

For small businesses, with fewer than 50 employees, there are no tax penalties for not providing insurance and having employees go to Connect for Health Colorado, the public insurance exchange set up in the state to provide insurance plans and premium subsidies under federal guidelines.

For larger employers, the fines will be hefty — and will hit even if a single employee goes to the exchange for health insurance.

“The fines are $3,000 for each full-time employee if they get premium subsidies through the exchange,” Merz said.

That sounds like a lot, but employees can only get premium subsidies if the company’s insurance is too expensive or if it doesn’t offer what the IRS considers “minimum value.”

“Under the health care act, a health plan provides minimum value only if the plan’s share of the total allowed costs of benefits provided to an employee is at least 60 percent,” according to IRS guidelines. “The minimum value percentage is the ratio of the share of total costs paid by the plan to the total costs of covered services.”

Calculating the minimum value percentage using anticipated covered medical spending for benefits — things like cost-sharing, deductibles and co-pays — allows businesses that self-insure and large-group plans to be covered.

“The proposed regulations clarify that minimum value is based on only the anticipated spending for a standard population,” the IRS guidelines say. “The (former) uncertainty led to the concern that employer-sponsored self-insured plans and insured large group plans would need to cover every type of benefit.”

Paperwork

Merz says she hears worries from very small businesses — farmers, ranchers and doctors’ offices — that worry about the tax penalties.

Those “super small” businesses have nothing to worry about, she says. They won’t face tax penalties.

But there are some key details that all businesses should track — the number of full-time employees and number of hours worked by both full-time and part-time employees.

“They need those 2013 hours,” she said. “And they’re easy to keep track of, through QuickBooks or a payroll specialist,” she said. “It’s the hours that will be used to calculate number of full-time employees and potential tax penalties. Businesses need to have a formal system in place.”

And they need to bring the information to their tax accountant, she said, to make filing taxes that much easier in the first few years of the new rules.

“And consider if you have seasonal employees — that’s a different equation than part-time,” she said. “It’s judged on a quarterly basis. So if you have too many, for too long, it could throw off the equation. It’s something to consider.”

Basically, the new rules add another layer of paperwork.

“Most businesses already keep track of hours,” she said. “But this just requires another level of paperwork. It’s complicated, because it involves specific calculations — but if you pay attention now, it will make a difference.”