PPA Seeks Delay of Costly Tax Penalty for Small Businesses

PPA is working to reduce the tax burden placed on small businesses by last year’s Patient Protection and Affordable Care Act. One of our goals is to at least delay the implementation of a potentially harmful tax penalty that unfairly targets small businesses.

The penalty at issue (enacted by last year’s health care reform law) is intended to prevent employers from selecting health care plans that favor “highly compensated individuals” (HCI). HCIs are currently defined as the top 25 percent of wage earners or the five highest paid officers. This definition is sure to have the greatest impact on small businesses. With so few employees, they will be the group most impacted by this penalty.

As the penalty is written, employers offering non-compliant health plans would face a fine of $100 per day, per employee…or the potential of a more costly lawsuit filed by an employee.

PPA joined the Small Business Coalition for Affordable Healthcare to issue objections to and offer solutions for this potentially cost-heavy penalty. In our comments to the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Internal Revenue Service (IRS), the agencies are asked to consider the following:

  • Delayed implementation – The comments stress the benefit of waiting until 2015 when small businesses are able to purchase insurance via a health care exchange. (The assumption is that it is unlikely an exchange plan would be non-compliant.)
  • Redefining the term “Highly Compensated Individuals” – The definition currently used by these agencies does not accommodate the structure of a small business, especially photography studios that may only have two or three employees.
  • Seeking additional input from small businesses – The comments ask the agencies to consider opening an additional comment period (after drafting the “final” regulations) to gather input from the small business community.

“By better defining how this penalty will be applied—via our suggestions—we expect a ‘small business safe harbor’ will be created,” said David Trust, PPA’s Chief Executive Officer.

Luckily, we have a chance to make such an impact now. Any harm that might be caused by this tax penalty can be tackled during the rulemaking process these agencies undergo prior to implementation (unlike the 1099 tax mandate, which needs to be reversed by Congress).

We will keep you updated on how the debate unfolds as the agencies move forward with the rulemaking process.

In addition to representing members on copyright issues, PPA is a strong advocate on small-business issues, primarily relating to health care. Through the Small Business Coalition for Affordable Healthcare, PPA advocates health care solutions that meet the needs of small-business owners, employees, the self-employed and their families. In previous congressional sessions, PPA has supported various health reform bills, in particular those that would provide trade associations the ability to create insurance pools on behalf of its members.

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