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Untangling Health Care Reform: Part 3

CHERYL TEVIS 05/12/2014 @ 8:39am Cheryl has been an editor at Successful Farming since 1979.

Now that the Affordable Care Act (ACA) individual open enrollment deadline has passed, it’s time to study the options for insuring your employees under the Small Business Health Options Program (SHOP). There’s no insurance mandate if your business employs fewer than 50 full-time employees. (About 96% of all U.S. small businesses fall into this category.)

For businesses with 100 or more employees, the mandate is delayed until 2015; it’s 2016 if you have 50 to 99 employees.          

“Right now, the ACA is like a moving target for small business owners,” says Marilyn Schlake, Extension educator, University of Nebraska-Lincoln. “No matter the size of your business, it’s important to understand the ACA rules and potential impacts on your operation.” 

The ACA also impacts farmers who have used tax-deductible arrangements for providing health benefits, including Health Reimbursement Accounts (HRAs).

Here are four common questions with their answers.

Q. How does the ACA affect my Section 105 employer-sponsored HRA?

A. A Section 105 medical reimbursement plan is a written plan that sets up an account to reimburse out-of-pocket qualified medical expenses not covered by insurance. The employer claims a business deduction, and the employee receives a tax-free fringe benefit. If you only have one employee, your Section 105 plan remains a valid benefit option under the ACA. However, a Section 105 plan covering more than one employee does not meet ACA requirements regarding the annual dollar value limits on essential health benefits or the employee cost sharing. See your accountant for other possible alternatives. 

Q. Will I have to pay two new Medicare taxes under the ACA law? How will they work?

A. It depends on your tax filing status and level of modified adjusted gross income for the year, says Marc Lovell, program director of the University of Illinois Agricultural and Consumer Economics Tax School. Two new Medicare taxes became effective January 2, 2013. The Net Investment Income Tax is a 3.8% tax on certain types of passive income (interest, dividends, rental income, and capital gains). If the income is derived from a “trade or business” and if the farmer “materially participates” in the activity generating the income, the income won’t be considered net investment income. Wages, self-employment income, and other sources of income subject to Medicare tax also may be subject to a new 0.9% Medicare tax. “The threshold for married filing jointly is $250,000. Farmers with incomes above this threshold may trigger tax liability for one or both of these new Medicare taxes,” Lovell says.

Q.  What is the Small Business Health Options Program?

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