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Lindley Estes is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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What does healthcare reform mean to small businesses?

This was my investment column for the week:

THE EXTENT to which looming tax reforms could affect small-business owners and wealthy Americans was made clear during a presentation I attended this week at Spotsylvania County‘s Bowman Center.

Nick Perrine, a certified public accountant with the Harrisonburg office of PBGH (he used to work in the firm’s Fredericksburg office), was the guest speaker at Thursday’s Small Business Alliance of the Rappahannock Region meeting.

Perrine gave an overview of all the tax reforms that small-business owners will face over the next few years unless Congress decides to change the laws.

“Most of this is bad news,” unfortunately,” said Perrine, who told the audience his remarks carried no partisan opinions.

Perrine covered topics including taxes on health insurance, estates and investment income. I couldn’t possibly summarize all the details in this short column, but here were some of his points that stood out.

  • Even though the health care reform bill passed by Congress was thousands of pages long, accountants still have very few specific details about how it will all work. It’s also unclear whether the reforms will go into effect as scheduled in 2013 and beyond. That makes it hard for businesses to plan.
  • Starting next year, employees won’t be able to use flexible-spending or health-savings accounts to buy over-the-counter medicine.
  • Though employers will soon be required to report the cost of providing group health insurance to each employee, Perrine said he doesn’t expect that individuals will ultimately be taxed on their health benefits as many now fear.
  • High earners will face higher Medicare taxes not just on earned income but also on investment income. The 3.8 percent tax on investment income for high earners is scheduled to start in 2013.
  • Under the recently passed health care reform, employers will be penalized for employees who receive a government subsidy for health insurance. Perrine thinks that could provide a significant disincentive for employers to hire low-wage workers, which could make it harder for low-income Americans to find work. Also, many employers may just pay the government penalties rather than offer health coverage.
  • Perrine was surprised that Congress allowed the estate tax to lapse this year. He thinks President Obama will likely extend something like last year’s rules–in which the first $3.5 million of an individual’s estate was exempt from taxes, with the rest taxed at 45 percent–for 2011. He also thinks Congress will extend most of the Bush-era tax cuts for a couple of years.

Overall, Perrine said, the reforms will impose more requirements, more reporting and more penalties on small businesses. Not exactly music to the ears of the crowd gathered Thursday.

Permalink: http://news.fredericksburg.com/businessbrowser/2010/11/21/what-does-healthcare-reform-mean-to-small-businesses/

  • Eddie

    Thanks for the insight! For these newer small businesses, what do you suggest they do? It’ll be interesting to see which of these can actually benefit from or even utilize it. I found a good blog on the qualifications of this act, if it helps at all. Thanks for the information!