The Affordable Care Act (the “Act”) and its companion legislation have received significant attention since they were signed into law by President Obama on March 23, 2010. The fate of the Act now rests in the hands of the United States Supreme Court. Commentators expect the court to hand down a decision in June.
Most of the attention has been directed at the provision of the Act that would require individuals to purchase insurance or pay hefty penalties. The so-called individual mandate may be the linchpin for striking down the entire law. But the individual mandate is not the only major provision in the Act with a significant impact on individuals and small businesses. The Act contains approximately 21 new tax and reporting requirements. Some of the new provisions went into effect in 2010 and 2011, but the vast majority are expected to be implemented over the next couple of years. These new taxes will affect individuals and small businesses.
Effective January 1, 2011, a provision of the Act came into effect that significantly restricts an individual’s ability to use pre-tax dollars to pay for medications and childcare. It reduces the annual limit on contributions to flexible spending accounts (FSA’s) to $2,500 per year and prohibits individuals from using FSA dollars to pay for over-the-counter medication. Additionally, the Act increased the threshold for persons itemizing medical expenses from $7,500 to $10,000.
But the Act doesn’t just have an impact on individuals. It has an impact on small businesses as well through reporting and business mandates. Beginning in 2011, the Act requires that employers report the cost of provided health coverage under an employer-sponsored health plan on an employee’s W-2, although the Internal Revenue Service has provided temporary relief for most small businesses from the reporting burden for 2011 and 2012. Additionally, businesses who, in the aggregate, pay more than $600 a year to an individual or business are required to fill out informational returns as part of its tax reporting to the IRS.
Finally, in addition to the individual mandate, the Act contains a companion provision that will affect small businesses. Starting in 2014, the so-called business mandate will apply, requiring certain employers to offer health coverage to their full-time employees or pay a penalty. The business mandate targets small businesses with at least 50 workers. A qualifying business that fails to provide government- approved health insurance to workers will be penalized to the tune of $2,000 to $3,000 per worker.
The IRS has been surprisingly fast to act and has taken steps to provide individuals and businesses with some relief. In order to help small businesses comply with the Act, the IRS established the Small Business Health Care Tax Credit aimed at helping small businesses and tax-exempt organizations cover their employees under the new business mandate.
Andrea J. Rosholt is an attorney at Moffat, Thomas, Barrett, Rock & Fields. Her practice areas are business law, commercial litigation, estate planning and probate, health care law, and tax law.