By Darlynn Morgan, Orange County Business Attorney

Health care reform was signed into law on March 30, 2010.

While many of the changes won’t take effect until 2013, as your Orange County business attorney, I’d say the time to start planning for these and other changes is now.

We’ve compiled a list of seven things you need to know about health care reform as a small business owner.  Call us to find out how to prepare for these changes before they happen and make sure that you minimize the downside and optimize any benefits:

1. Tax Credits As Incentives To Provide Health Care Coverage

Beginning with this tax year, if you have 10 or fewer employees and average annual wages of less than $25,000 per year, you can get a credit of up to 35% of your health insurance premium costs each year through the year 2013.  The tax credit will be phased out for larger companies.  It will not exist at all for companies with more than 25 employees or average annual wages of $50,000 or more.

In 2014, each state will be required to establish a “health insurance exchange”.  This exchange will be a marketplace where individuals, the self-employed and small businesses can buy health insurance.  The exchanges will be regulated by the government and will offer policies with a wide range of coverage options and price tags to match.  If your small business signs up with one of the health insurance exchanges you can receive a credit of up to 50% of your costs.  However, this program will also be subject to the same work force size and annual income restrictions as the one mentioned above.  And the tax credit will disappear after the year 2015.

2.         Value of Health Care Benefits To Be Listed on W-2’s

Starting in 2011, businesses must list the value of health care benefits they provide to employees on the employees’ W-2’s.  The value, however, is not treated as taxable income.

3.         Effects On Medicare Part D Prescription Drug Coverage

If your business is getting a tax deduction for providing Medicare Part D prescription drug coverage to your retirees, and the federal government subsidizes that coverage, your deduction will be eliminated in 2013.

4.         Health Care Flexible Spending Accounts

Effective in 2013, employees can contribute no more than $2,500 per year to a health care flexible spending account.  Make sure your employees are made aware of the change and plan accordingly.

5.         Medicare Tax

If you or any of your employees will earn $200,000 or more beginning in 2013, a 0.9% Medicare surtax will be applied to any money you earn over $200,000 (or $250,000 for a married couple).  And a Medicare tax of 3.8% will be applied to the investment income of those earning above these income levels.  The tax will be applied to their unearned income or the amount that their income exceeds the $200,000 or $250,000 thresholds. For purposes of this tax, unearned income is defined as interest, dividends, capital gains, annuities, royalties and rents.  Any interest that is legally tax exempt or income from retirement accounts will not be included.

6.         Tax On “Premium” Health Care Plans

Starting in 2018, high-cost or so-called “premium” health care plans will be subject to a 40% excise tax.  The tax will be applied to the portion that is over $10,200 for individuals and $27,500 for families.  This tax can be applied to not only employer provided plans but individual plans as well.

7.         Fees For Failure To Offer Coverage

If your business has 50 or more employees and you fail to offer health care coverage, you will be subject to a non-deductible fee equal to $2,000 multiplied by the number of employees (less the first 30 employees).

The new health care reform law contains many new taxes and tax increases that could be landmines waiting for your small business.  Don’t let an oversight cost you even more.

Call me, your neighborhood Orange County business attorney for a comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit today so we can identify the best course of action for you.  Normally, this session is $1250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.