New Health Care Bill Affects Business Owners Immediately

By Clinton Baker | June 10, 2010
Business owners and managers will feel the impact of the biggest piece of federal legislation passed this year by the U.S. Congress. In March, the Patient Protection & Affordable Care Act was signed by President Barack Obama. The measure reformed health care and springboarded a series of tax changes and insurance implications that directly affect ethanol plants.

The bill is estimated to cost more than $940 billion over the next 10 years, most of which will be offset by $438 billion of new taxes plus $500 billion of anticipated decreases in healthcare spending, largely in Medicare. The goal of this 2,200-page bill is to provide insurance for nearly 60 percent of the current 54 million uninsured Americans.

Normal income tax rates were already set to rise in 2011 before this bill passed. However, two new taxes have been enacted for 2013. A 0.9 percent tax will take effect on earned income as part of a Medicare tax for married people filing jointly with modified adjusted gross income above $250,000 ($200,000 for those filing single). This will affect plant owners who are actively involved in the business or those whose combined wages take them above this threshold.

Additionally, taxpayers will pay a new 3.8 percent tax on "unearned income" if they have more than $250,000 of modified adjusted gross income ($200,000 for those filing single). A person currently earning more than $250,000 is taxed at a 35 percent rate in income in 2010. Next year, the rate rises to 39.6 percent and in 2013, this income bracket will have the additional 3.8 percent. Once state income tax rates are thrown into the mix, an employee with this level of income could easily pay nearly 48 percent in taxesand ultimately help fund the nation's health care act.

A tax credit does exist for small employers with less than 25 employees to offset part of the cost of health insurance provided for their employees. This credit is available now through 2015.

On the non-tax side, a "grandfathered" health care plan, which is any plan in place on March 23, is exempt from market reforms in the bill with some exceptions. Even grandfathered plans will be subject to new coverage disclosure rules, no lifetime coverage limits for essential benefits, no annual coverage limits on essential benefits and the extension of dependent coverage until the dependent turns 26 years old. In addition, there will no longer be pre-existing conditions exclusions for children up to the age of 19 and, by 2014, no pre-existing conditions exclusions for any individual.

Also by 2014, business owners with more than 50 employees will be required to provide "minimum essential coverage." Noncompliance with this rule subjects a business to an annual fine of up to $3,000 per employee. There will also be a penalty for individuals who don't purchase insurance. By the time this law is fully phased in, the federal government expects four million businesses will pay the penalty resulting in $4 billion in revenue.

The changes the health care bill has placed on business owners are significant and must be considered immediately as the law took effect in March. Consider the scope of the changes needed to ensure compliance and avoid paying fines and penalties.

Clinton Baker is a CPA and manager of the general practice group in the Wichita, Kan., office of Kennedy and Coe LLC. Reach him at or (800) 303-3241.