Health Insurance Premiums Paid to 2% Shareholders
The Internal Revenue Service requires health insurance premiums paid by Subchapter S corporations for employees owning more than 2% of the corporation and/or their family members (“2% shareholders”), to be treated as additional wages to the employee. These wages are subject to federal income tax withholding, but exempt from FICA, Medicare and FUTA. Beginning with 2009, if these premiums are not included on the W-2 of the 2% or more shareholders, they may not be deducted.

Group Term Life Insurance
The value of company-provided group term life insurance in excess of $50,000 must be included in the employee’s income and is subject only to FICA and Medicare withholding. The value of includable compensation is calculated according to the following table:

UNIFORM PREMIUMS FOR $1,000 OF
GROUP-TERM LIFE INSURANCE PROTECTION
———————————————————–
5-year Cost per $1,000
Age Bracket for one month
———————————————————–
Under 25 $0.05
25 to 29 .06
30 to 34 .08
35 to 39 .09
40 to 44 .10
45 to 49 .15
50 to 54 .23
55 to 59 .43
60 to 64 .66
65 to 69 1.27
70 and above 2.06

For 2% shareholders, the entire amount of premiums paid must be included as income on the shareholder’s W-2, subject to federal income tax withholding, but exempt from FICA, Medicare and FUTA.

Personal Use of Auto
When providing an employee (including shareholder/employees in corporations) the use of a company-provided vehicle, a value representing the personal portion of usage of the vehicle must be included in the employee’s W-2 income. The value computed must be included in the employee’s W-2 as wages and is taxable for federal income tax, FICA, Medicare and FUTA. Although FICA and Medicare withholding is required, federal withholding is not required if notice was provided to the employee of the Company’s decision not to withhold by January 31st.

Health coverage legislation enacted this year (March 23, 2010) includes a Small Business Health Care Tax Credit to help small businesses and small tax-exempt organizations afford the cost of covering their workers. The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. An enhanced version of the credit will be effective beginning in 2014.

Eligibility Rules
• Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
• Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
• Average annual wage. A qualifying employer must pay average annual wages below $50,000.
• Both taxable (for profit) and tax-exempt firms qualify.

Amount of Credit
• Maximum Amount. The credit is worth up to 35 percent of a small business’ premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
• Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

Three Simple Steps for Employers to Qualify
To determine if your small business or tax exempt organization qualifies for the Small Business Health Care Tax Credit, follow the three simple steps on the IRS fact sheet (see next page)

http://www.irs.gov/newsroom/article/0,,id=220809,00.html INSTRUCTIONS

http://www.irs.gov/pub/irs-news/health_care_postcard_notice.pdf SAMPLE POSTCARD

The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations.
In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit.

http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf 3 STEP WORKSHEET

Yesterday, I started a series of post regarding President Obama’s Policy Proposals – this is Part II of that post. If you missed Part I, you can find it here.

Family and Medical Leave Act Expansion. Obama’s proposal wants to expand FMLA to require businesses with as few as 25 employees to abide by its requirements. Currently, the requirement is only for companies with 50 or more employees. President Obama’s proposal also hopes to expand the list of reasons employees can give in order to take the leave, including the following: up to 24 hours per year for participation in children’s academic activities, leave for workers who care for individuals who live in their home for 6 months or more, and leave for employees to address elder care, domestic violence, and sexual assault. When FMLA originally passed in 1993, it placed a lot of requirements on many small businesses that simply could not be easily met in such a small enterprise. Now they are trying to force it on small businesses with as little as 25 employees. This will result in higher cost and lower productivity for many small businesses.

Extend Paid Sick Time Benefits. President Obama has proposed a requirement that employers provide seven paid sick days per year. In the material that I have read, there is no distinction that states that some employers will be required to do this and other will not. Nevertheless, if small businesses are required to abide by this requirement, it will certainly result in higher labor cost for most. When I worked in a big corporate job, we didn’t even get seven sick days (we got 5). This should be a benefit that is decided by the employer. It is part of the employee-employer agreement when the employee starts and if the employee does not like the employer’s policy – they should go find a job elsewhere. In my opinion, government has no reason to be interfering here.

Encourage State to Adopt Paid Leave. I did a little research trying to figure out what this was, and the best I can figure it is another social program. If you have to take off from your job for certain reasons, presumably sickness or another FMLA allowable excuse, you can still get paid. President Obama’s proposal hopes to get all 50 states on board and President Obama has said that he will sit aside $1.5 billion to help States with startup cost, etc. Do I need to say a lot here? Have we ever implemented any social program where the cost did not astronomically exceed the planned cost? Have we ever implemented any social program where it was not throughly abused?

Small Business Health Tax Credit. President Obama is proposing a new tax credit to help small businesses provide affordable health insurance to their employees. Sounds good, but who is really paying for this? Someone is paying for it.

National Health Insurance Exchange. I don’t quite understand this one. This proposal is to establish an “exchange with a range of private insurance options as well as new public plan based on benefits available to Congress that will allow individuals and small businesses to buy affordable health coverage.” One thing I know is that insurance ultimately cost what the underlying medical cost are plus a small profit for the insurance company. This small profit looks big when added up on all the policies, but eliminating the profit on an individual premium is not going to have a drastic effect on the bottomline price. The underlying expected medical cost will ultimately determine the cost of the insurance. I am not a fan of insurance companies, but lets be fair – just like any other company they are in business to make a profit. They are not going to take a loss because they like Obama and because he asks nicely. In order to lower the cost of insurance, someone has to pay for it. Also, I doubt that insurance similar to what “Congress” has will ever be affordable.

Coverage of Catastrophic Health Costs. President Obama’s proposal here states that it would “cover a portion of the catastrophic health costs businesses pay in return for lower premiums for employees.” I am not quite sure what this means, but I understand this as the government will kick in towards the cost of catatrophic insurance as long as the savings is passed on to employees. Sounds good on the surface, but once again who is paying for this? The government just doesn’t have a lot of excess money sitting around. They will have to get the money for this from somewhere which basically means higher taxes.

Large Employer Health Care Mandate. This would require large employers that do not offer coverage or make a meaningful contribution to the cost of health coverage for their employees to contribute a percentage of payroll toward the cost of their employees’ health care. Most large employers already offer some sort of coverage to full-time employees. Many that do not are in industries that are already struggling to get by from a cost standpoint. In other words, large employers that do not provide health coverage do so for a reason – it is not affordable to do so within their business model. Too many people have this view of business and especially large companies that they are greedy and are keeping more than their fair share. Many of these companies are barely making a profit and are barely getting by. Increased cost and regulations are not what they need to make it through this difficult economic time. Hopefully, this will not result in more of our jobs disappearing to overseas manufacturers who do not have these strangleholds on their livelyhoods.

I will post Part III of this multiple item post tomorrow. As always, if you have any questions, feel free to ask.