Understanding Health Care

By Michael Hanley

The new Health Care bill is creating quite a stir among the small business community and among the general population. There are so many rumors, so many half-truths, and so much misconception floating around, that I have decided to address a few of the more common myths that I have heard. If there are any rumors that you have heard, post them and I will address whether or not they are real or just hype:

Myth #1: Your Medical Benefits Will Appear on Your W-2 and Will Be Taxed as Income
Ruling: Half-Truth

The top questions that I have been asked lately are "Will my health insurance be taxed as income?" and "Will health insurance be taxable income?" While the cost of your health insurance and some other benefits will appear on your W-2 (starting with your 2011 W-2 that will be issued in January 2012), they will not be taxable to you as income. For now, these figures are appearing for three reasons:

For informational purposes
So your employer can justify the expense on their Corporate Tax Return
To ensure that businesses with 50 or more employees are in compliance with offering health insurance coverage to their employees


Myth #2: You Will Have to Start Issuing 1099s to All of Your Vendors and Suppliers (Even Staples)
Ruling: The Jury is Still Out

As per the current wording of the Healthcare Plan, yes, this is correct. Starting in 2012, businesses must begin issuing a 1099 to every vendor or supplier who they pay $600 or more during the course of the year. This is no longer limited to Independent Contractors and service providers, but everyone. Verizon, Staples, your insurance carrier, your automobile lease holder, Dell, the deli that you order lunch from every Friday, etc...you will now have to obtain their Tax ID # and issue them a 1099 at the end of the year.

However, being as this will be a nearly daunting task that will double (and even triple) the cost of accounting services for some of the smaller businesses out there, a war will be waged over the next two years in order to have this portion of the Healthcare Plan retracted or at the very least minimized to focus on certain vendors and suppliers.

Myth #3: Small Businesses Will Be Penalized for Not Providing Health Insurance to All Employees
Ruling: Half-Truth

The first important factor to consider here is that this provision of the law doesn't go into full effect until 2014. This means that a new Presidential administration may be in place and may look to reverse this facet (or many facets) of the plan.

Secondly, if your business has fewer than 50 employees, this is a non-issue as there will be no penalties assessed against small businesses with fewer than 50 employees.

If you are a small business owner who has always taken the DIY approach to your accounting and tax preparation (especially if your business employs or plans to employ 50 or more people between now and 2014), now is the time to start working with a CPA who is not only well-versed with small business taxation, but who is familiar with the new Healthcare Plan. While this new Healthcare Plan is set to provide some nice benefits and credits to small businesses who offer health insurance to their employees, it is also providing a tremendous amount of confusion and tough-to-navigate paths.

This article has been submitted by local resident Michael Hanley.  Michael Hanley is recognized as one of the foremost experts in the field of Entity Selection. He is a Certified Public Accountant, a Certified QuickBooks ProAdvisor, and the author of three small business accounting books, 'Choosing the Right Structure for Your Business,' 'Effective Tax Planning for the MicroBusiness,' and 'Why You Should Incorporate Your Real Estate Business.' His expert opinions are frequently published in media outlets across the country such as Wall Street Journal, BusinessWeek, LA Times, Chicago Tribune, Newsday, Long Island Business News, Accounting Crossing, BrandWeek, and USAA Magazine among others.

As the Managing Partner of the Smithtown CPA Firm Merl & Hanley LLP and the founder of Corp-4-U, the first incorporation service to feature a CPA working alongside licensed attorneys in order to offer low-cost incorporation services, Hanley has successfully counseled hundreds of small businesses as to which type of business structure best fits their business and tax needs.

Michael lives in Kings Park, NY with his wife, son, and Cavalier King Charles Spaniel.