Obamacare For Employers

The recently enacted health overhaul legislation requires certain employers to offer and contribute to their workers’ health insurance or pay a penalty. Under the new law, effective for months beginning after Dec. 31, 2013, a large employer that does not offer coverage for all its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%, is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state Exchange with respect to which a premium tax credit or cost-sharing reduction is allowed or paid to the employee. Here are the details:

Who is subject to the employer mandate? Only an “applicable large employer,” defined as someone who employed an average of at least 50 full-time employees during the preceding calendar year, is subject to the requirement to offer coverage. Most small businesses, since they have fewer than 50 employees, are thus exempt from the employer requirement. In counting the number of employees for purposes of determining whether an employer is an applicable large employer, a full-time employee (meaning, for any month, an employee working an average of at least 30 hours or more each week) is counted as one employee and all other employees are counted on a pro-rated basis (full-time equivalent calculation is the total hours of part-time employees for the month divided by 120). However, even an employer with 50 or more employees isn’t subject to the penalty for not offering coverage if the employer doesn’t have any full-time employees who are certified to the employer as having purchased health insurance through a state Exchange with respect to which a premium tax credit or cost-sharing reduction is allowed or paid to the employee. In other words, if an employer doesn’t have any full-time employees who have a lower income that might qualify him or her to receive a subsidy when purchasing a health plan in the proposed health insurance exchange, the employer will not pay a “pay or play” penalty.

Penalty for employers not offering coverage. An applicable large employer who fails to offer its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan for any month is subject to a penalty if at least one of its full-time employees is certified to the employer as having enrolled in health insurance coverage purchased through a state exchange with respect to which a premium tax credit or cost-sharing reduction is allowed or paid to the employee. The penalty for any month is an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) multiplied by one-twelfth of $2,000. For example, if an employer fails to offer minimum essential coverage and has 60 full-time employes, 10 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan, the employer will owe $2,000 for each employee over the 30-employee threshold, for a total penalty of $60,000 ($2,000 multiplied by 30 (60 minus 30)). This penalty is assessed on a monthly basis.

Penalty for employers that offer coverage but have at least one employee receiving a premium tax credit. An applicable large employer who offers coverage but has at least one full-time employee receiving a premium tax credit or cost-sharing reduction is subject to a penalty. The penalty is an excise tax that is imposed for each employee who receives a premium tax credit or cost-sharing reduction for health insurance purchased through a state exchange. For each full-time employee receiving a premium tax credit or cost-sharing subsidy through a state exchange for any month, the employer is required to pay an amount equal to one-twelfth of $3,000. The penalty for each employer for any month is capped at an amount equal to the number of full-time employees during the month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) in excess of 30, multiplied by one-twelfth of $2,000. For example, if an employer offers health coverage and has 60 full-time employees, 15 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan, the employer will owe a penalty of $3,000 for each employee receiving a tax credit, for a total penalty of $45,000. The maximum penalty for this employer is capped at the amount of the penalty that it would have been assessed for a failure to provide coverage, or $60,000 ($2,000 multiplied by 30 (60 minus 30)). Since the calculated penalty of $45,000 is less than the maximum amount, the employer pays the $45,000 calculated penalty. This penalty is assessed on a monthly basis.

Requirement to offer “free choice vouchers.” After 2013, employers offering minimum essential coverage through an eligible employer-sponsored plan and paying a portion of that coverage will have to provide qualified employees with a voucher whose value could be applied to purchase of a health plan through the Insurance Exchange. Qualified employees would be those employees: who do not participate in the employer’s health plan; whose required contribution for employer sponsored minimum essential coverage exceeds 8%, but does not exceed 9.8% of household income; and whose total household income does not exceed 400% of the poverty line for the family. The value of the voucher would be equal to the dollar value of the employer contribution to the employer offered health plan. Employers providing free choice vouchers will not be subject to penalties for employees that receive a voucher.

Michigan Personal Property Tax Reform

On December 20, 2012, Governor Snyder signed a bill into law that will phase out the Personal Property Tax (PPT) for most Michigan businesses beginning in 2014.  This effort is aimed at continuing to make the state a more attractive place for businesses to invest and grow.

The timeline for the phase out is scheduled to be as follows:

  • Beginning January 1, 2014, all industrial and commercial personal property owned within a city or township that has a combined taxable value of less than $40,000 will be exempt from the personal property tax
  • Beginning January 1, 2016, all new business personal  property, all personal property purchased between 2013 and 2015, and all personal property purchased before 2006 will be exempt from the personal property tax
  • Any personal property purchased between 2006 and 2012 will become exempt from the personal property tax once the property is 10 years old (i.e. equipment purchased in 2006 will be tax exempt in 2017)

In order to claim the exemption for industrial and commercial personal property valued less than $40,000, an affidavit will be required to be filed with the local tax collecting unit by February 20 of each year.  In addition, for each year that assets become newly eligible for the tax exemption, an exemption claim must be filed by February 20.  Once an exemption claim is filed for a particular asset, that asset does not need to be reported with a subsequent exemption claim.

Local governments will have two new sources of funding available to them to replace the loss of revenue from the elimination of the personal property tax.

Beginning on January 1, 2016, local governments will be authorized to levy a special assessment on all industrial and commercial real property.  The special assessment will be limited to 100 percent of the personal property tax that would have been collected.

Local governments may also be eligible for funds from the new Metropolitan Authority.  The Metropolitan Authority will be allocated a portion of the Michigan use tax revenue which can then be distributed to eligible local governments.  The reallocation of the Michigan use tax revenue does require approval by a statewide vote which is slated to take place during the August 2014 regular election.  In addition, the entire personal property tax reform package is contingent on voter approval of the use tax reallocation.

Delay for 2012 Business Returns due to American Taxpayer Relief Ad of 2012

Delay for 2012 Business Returns due to American Taxpayer Relief Ad of 2012

The IRS has not released a, additional information on business return processing since their statement on January 7, 2013 (see below), regarding the American Taxpayer Relief A, of 2012 (ATRA). Thomson Reuters is closely monitoring the situation and we are working with the IRS to determine the nature and scope of the impact for 2012 tax year business return processing, including the March Id deadline for Form 1041 qualified farm returns, as well as delayed forms such as Form 4562, for paper and electronic filing. Thomson Reuters .11 provide updated information as soon as it becomes available.

Opening day for filing 2012 fiduciary returns electronically is scheduled for Monday, January 26, 2013. The IRS has not announced any decision on whether delayed ATRA forms will affect the electronic filing of fiduciary returns.

IRS Statement on January 7, 2013 regarding MeF delay for 2012 business returns:

The IRS continues to review the details and impact of the new tax law signed At week, but a number of these provisions will require changing forms and updating the IRS processing systems involving non-1040 business returns. As a result, electronic filing of many business returns will be delayed while the IRS updates forms, related instructions and corresponding systems.

The IRS will not accept these business tax returns for processing through MeF at this time:

  • All 2012 tax year business forms
  • Form 990 series

Beginning January 7, 2013, the IRS will accept these business returns for processing through MeF

  • Fiscal year returns with a year ending prior 04 12/31/2212
  • All 2011 tax year and 2012 fiscal year business returns, including Form 1120 series
  • 2012 Tax year Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns

Note: Business tax returns that cannot be processed through MeF at this time will also not be processed if submitted on payer. We will provide updated infon7ra0on as it becomes available.

Fiscal Cliff Tax Deal: What Does It Mean for Small Business?


On AMT the current exemption of $33,750 individual and $45,000 married is increased to $50,600 single and $78,750 married and indexes the exemption and phaseout amounts. KEY – this new AMT fix is for tax years beginning after December 31, 2011 – i.e. the 2012 tax year. Happy day.

BUSINESS PROVISIONS EXTENDED (not permanent) – The most important tax credit for small and medium business owners – the Research and Development (R&D) tax credit was extended through 2013 and made retroactive for 2012 (see more below); Work Opportunity Tax Credit extended one year; Section 179 – keeps in place the 2010/2011 levels of a maximum amount of $500k and $2 million phase-out for 2012 and 2013; Accelerated Depreciation — the Senate deal provides for 50 percent expensing for qualifying property purchased and placed in service before January 1, 2014 (and January 1, 2015 for certain long-term assets and transportation).

Now, the bad news – the tax increases – and the hidden tax increases.

ORDINARY INCOME: While the tax deal increases the rates at a higher level than first proposed by the President ($200k single/250k married) – it does increase the rates from 35% to 39.6% at $400k single and $450k married (talk about a marriage penalty). From 2012 tax policy this is a tax increase of $396 billion over 10 years. Don’t forget, there is also the 0.9 percent tax increase on ordinary income over 200k/250k already set to begin in 2013 thanks to the health bill. Given that small and medium businesses are overwhelmingly organized as pass-thrus (LLC’s; S Corps; partnerships) – it is the ordinary income rate that hits these business owners – not the corporate rate (which was untouched in this deal).

CAPITAL GAINS/DIVIDENDS: Top rate increased to 20 percent (but not to 39.6 for dividends as proposed by the administration). Not a surprise that dividends didn’t increase to 39.6% given unpopular with many Democrats in the Senate as well as almost all Republicans. Still this increase to 20% raises over $56 billion over ten years from current 2012 tax policy – mostly from dividends. The top rate for dividends and capital gains starts at the $400k/$450k level. Note: this increase is in addition to the 3.8% add-on tax for capital gains and dividends included in the health bill. In addition, nothing done specifically on carried interest.

ESTATE TAX: Always of significant interest to family-owned businesses. Estate tax was a bit of a mixed bag – the $5 million dollar per person exemption was kept in place (and indexed for inflation continued) however the top rate is increased to 40 percent – effective date January 1, 2013. This change to 40 percent increased revenues from 2012 policy by $19 billion dollars. Other good news for estate planning – portability is kept in place and estate and gift remains unified – ie the $5 million stays in place for gift tax purposes as well. All permanent law — hallelujah.

HIDDEN TAX INCREASES — PHASE OUTS – One of the best things of the Bush tax cuts was the elimination of ”PEPS” and “Pease” – shorthand for phase outs of personal exemptions and certain itemized deductions. These are in effect hidden marginal rate increases. Unfortunately, the tax deal brings these bad policies back – albeit at a higher dollar level – hitting folks making $250k single and $300k married. It all sounds so very boring. Don’t be bored — this little understood and rarely discussed provision packs a womping tax hit of $152 billion dollars over current 2012 tax policy.

PLANNING OPPORTUNITIES FOR BUSINESS. The increase in the top rate, the AMT relief provided for 2012 tax year and the hidden tax increases – all combine to make it possible that many small and medium businesses that weren’t eligible for business credits thanks to AMT limitations in 2011 will now potentially be able to take advantage of these dozens of credits. In essence, a backdoor opportunity for small businesses — similar to when Congress expanded eligibility for credits for 2010. As mentioned above, the R&D tax credit remains the biggest business credit out there – but for reasons of self-censoring small businesses don’t take advantage of the credit. The time is now – before filing 2012 tax returns — for business owners to have a sit down with their accountants and focus on all of these business credits.

The other benefit that jumps out at me from this tax deal is IC-DISC. I’ve written on this in the past – this is a tremendous tax benefit for exporters (including computer software – software done here but sold overseas; architects, engineers – building designed here but built overseas). This tax benefit is for small and medium manufacturers who export — but also for businesses who manufacture a part, for example, an engine that goes on a plane that is exported. In a nutshell, the benefit is derived from getting dividend tax treatment for what would otherwise be ordinary income. Think big tax savings.

2012 Mileage Rates

The standard tax deductible IRS mileage rates for the use of a car, van, pickup truck, or panel truck during 2012 are:

55.5 cents per mile driven for business purposes
23 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

Alert on Tax Changes for 2013

Alert on Tax Changes for 2013. Watch Out for the Fiscal Cliff!

  • The Bush tax cuts expire. That means the top rates on ordinary income goes from 35% to 39.6%; the top rate on capital gains goes from 15% to 20%; and the top rate on qualified dividends jumps from 15% to 39.6%. Much of the debate over tax rates focuses on income at the top. But the expiration of the Bush tax cuts affects all of us. The lowest 10% rate will disappear entirely, and everyone who actually pays income tax will pay more.
  • New taxes imposed by the 2010 Affordable Care Act (aka “Obamacare”) take effect. The Medicare portion of Social Security and self-employment taxes goes up from 2.9% to 3.8% on earned income topping $200,000 ($250,000 for joint filers). And there’s a new 3.8% “Unearned Income Medicare Contribution” on “net investment income” (interest, dividends, capital gains, rents, royalties, and annuities) over those same amounts.  For example, if your Joint Modified Adjusted Gross Income is $350,000 and your net investment income is $50,000, you will pay an additional 3.8% tax on the lesser of $100,000 or $50,000.  Your tax just increased by $1,900.   In addition to this tax, you will pay .9% on the $100,000 which equals another $900 in medicare tax.
  • The 2011-2012 payroll tax cuts expire. That means Social Security and self-employment taxes go up by 2% on ALL earned income up to $113,700. Two percent may not sound like a lot — but it means higher taxes for about 163 million working Americans.
  • The Alternative Minimum Tax exemptions revert back to where they stood in 2000. Under current law, those exemptions aren’t adjusted for inflation. So, every couple of years, Congress “patches” the system by temporarily raising the exemptions to where they would be if they were indexed for inflation. The AMT currently hits about 4½ million Americans — but without the “patch,” that number explodes to 33 million.
  • Estate taxes, which currently start at 45% on estates over $5 million, will also jump to 55% on estates over just $1 million.

State of Michigan Unemployment

The State of Michigan Unemployment Insurance Agency (UIA) recently rolled out a new and improved system for managing your unemployment account electronically. In addition, the new Employer’s Quarterly Wage/Tax Report (Form UIA 1028) was created which now replaces the Quarterly Wage Detail Report (Form UIA 1017) and the Employer’s Quarterly Tax Report (Form UIA 1020), among others. This new form will be used starting with the 3rd quarter of 2012. The form can be paper filed for the 3rd quarter but beginning in January 2013, all employers with 25 or more employees must electronically file the form and in January 2014, all employers with 5-24 employees must electronically file the form. By January 2015, all employers will be required to file the form electronically.

If you are an employer, you will need to create an account on the new unemployment system to view, change, or submit information relating to your UIA tax account. To get started, go to https://miwam.unemployment.state.mi.us/mip/webdoc/. Paper forms are available on the UIA website which can be found at http://www.michigan.gov/uia.

As a reminder, there are penalties for filing the unemployment forms late and those penalties are now increasing. If the form is filed late but is within 30 days of the due date, the fee is now $50 which is up from $25. For every quarter that the form is late thereafter, the fee is $250 per quarter.

Website Update

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