Tax laws change every year and so we are forced to learn and adapt. The good news for 2015 is that most of the tax changes affecting small businesses are minimal and involve only adjustments for inflation. The four most significant changes affecting small business taxes for 2015 all relate to health care and ongoing implementation of the Affordable Care Act. All of this year’s changes this year increase tax burdens on small business owners and their employees. Some of those costs could be catastrophic
- New required reporting of self-insured health benefits. All employers, regardless of size, must now report the value of self-insured health benefits in Box 12 of the employees’ Form W2 under code “DD”. Small businesses with self-insured health plans must now also file an annual return or Form 1095-B reporting certain information for each employee you cover. The problem is that some small businesses are not even aware that they have a self-insured health plan. Self-insured health plans are indicated by reimbursement to employees without integration with an employer-provided group health insurance policy. Penalties for non-compliance with this reporting are severe but some relief is allowed for 2015 returns if employers document their compliance efforts. It seems likely that tens of thousands of businesses are affected.
- Excise tax for non-integrated benefits and individual insurance. New tax Form 8928 must be included on many small business tax returns to report excise taxes on certain types of employee health benefits. The new tax will be a huge burden for some. Penalties are triggered by reimbursement of out-of-pocket expenses outside of an integrated group health insurance policy or for paying for or reimbursing an employee for the cost of individual health insurance. IRS may reduce or waive a penalty where the failure to correct the health plan is due to reasonable cause and not to willful neglect. The IRS may also consider whether the payment of such excize tax would be excessive relative to the type of failure by the business owner to correct the health plan. Unfortunately, it seems that some firms are operating non-compliant health plans with willful neglect of the law and s the IRS is likely to make an example out of a few to help convince up to 100,000 firms to become compliant with ACA. The maximum penalty is $100 per employee per day.
- FSA rollover kills HSA contribution. Rolling over a Flexible Spending Account allowance from 2014 disqualifies you from a Health Savings Account in 2015. Having both plans available was a nice option until this year. Losing the HSA deduction for a family plan could cost you more than $2,000 in additional taxes this year. The problem is that it is too late to do anything about it now.
- Penalty for going without insurance doubles. The penalty for not having health insurance doubles to 2% or income. This affects many self-employed individuals and freelancers. Last year IRS reported that 17 million owed the penalty, up from an earlier forecast of 4.3 million.
If you are caught in #1 or #2 above then it makes sense to immediately consult with a third party expert who help you plan steps to become compliant. Remember that tax penalty relief depends on your ability to document the actions taken to become compliant. It is difficult to do that if you aren’t even sure of the law in the first place of can’t prove when you became aware of problem and what you did to correct it. If #3 or #4 are a problem, there is still time for financial planning at the individual level to minimize or eliminate tax penalties.