Healthcare Legislation as the Centerpiece for 2006: What that Means for Small Businesses The rapid increase in healthcare costs has grabbed the attention of employers, employees, and the government. Costs are rising just under double-digit rates, with the government saying that healthcare spending rose 7.9 percent in 2004. As healthcare costs continue to skyrocket, small-business owners are left with very few options if they want to offer health insurance coverage to their employees. In President Bush’s $117 billion healthcare proposal, there are a number of healthcare initiatives that specifically address the needs of the small-business owners. In addition, as the campaigns for the 2006 mid-term elections begin, it is likely that there will be a renewed legislative effort to change the small-business health insurance options. In particular, a new approach to allowing small businesses to band together across state lines and to providing incentives for small businesses offering Health Savings Accounts (HSAs) are likely to be at the top of the agenda.
Small-Business Health Plans
Small-Business Health Plans (SBHPs) are a new approach to the idea of allowing small businesses to combine, across state lines, in order to purchase health insurance. Under the Employee Retirement Income Security Act of 1974 (ERISA), large and medium-sized businesses and labor unions offer healthcare benefits to their employees and union members. Instead of meeting individual state health mandates and regulatory requirements, ERISA allows these large organizations to comply only with federal law. Small businesses, on the other hand, do not have the resources to self-insure, and they are required to meet individual state regulations according to the state where the employee works.
SBHPs, formerly referred to as Association Health Plans, would allow small businesses to be included under ERISA by grouping together through memberships in associations. The SBHPs would then be large enough to be included under ERISA regulations that preempt state mandates, allowing the small business to purchase health insurance that meets federal requirements. Ultimately, the SBHPs would give the small businesses more negotiating power with plans and providers and make coverage more affordable by spreading the risk among a larger group and reducing administrative costs.
Since 1994, the House of Representatives has passed legislation allowing SBHPs more than seven times. On March 16, 2005, the House Education and Workforce Committee approved the most recent SBHP bill, the Small Business Health Fairness Act (H.R. 525). Since then, though, the legislation has stalled, and there has yet to be a full vote in the House. A similar Senate bill, the Health Insurance Marketplace Modernization and Affordability Act (S. 1955) was introduced by the Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, Senator Michael B. Enzi (R.-WY). On March 15, 2006, the HELP Committee voted on the bill and passed it
Inside
Inside Washington
FICA Tax Treatment of Disability Payments IRS Issues Proposed Regulations on Discarded Entities and Employment Taxes
New AMT Assistant Initiative on IRS.gov Numbers Game - Mother’s Day Standard Mileage Rates Come Down 2006 Inflation Figures Released Accounting Salaries on the Rise Are Sick Days the New Vacation Days? National Taxpayer Advocate Releases 2005 Report to Congress
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www.ceridiansmallbusiness.com • 1-800-WE-PAY-YOUSpring 2006
Inside Washington
By Allison Dembeck, Manager of Government Relations, Ceridian Corporation
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in Committee. The expectation is that the full Senate will consider the bill sometime in the Spring. In the past, the Senate has had difficulty reaching consensus and passing their version of the bill, but the renewed interest and movement is a positive sign.
As 2006 begins, both the House and the Senate intend to renew efforts to pass the SBHP legislation. There continues to be concern surrounding the idea, though. In particular, there is a fear of “cherry-picking” or discrimination based on health status. Both bills address this concern by creating insurance market safeguards. SBHPs would be subject to the Health Insurance Portability and Accountability Act (HIPAA), making it illegal to deny coverage based on the health status, and, ultimately, making it impossible to cherry-pick because high-risk groups or individuals cannot be denied coverage. In addition, the House bill gives the Department of Labor regulatory authority to ensure that SBHPs are properly administered and implemented, and the Senate bill specifically addresses the concerns of SBHP opponents and attempts to reach compromises on the issue.
Flexible Spending Accounts
The House of Representatives included Flexible Spending Account (FSA) $500 rollover language in the pension reform bill, the Pension Protection Act (H.R. 2830). While the underlying measure is the most comprehensive retirement security legislation since the ERISA, this particular provision would eliminate the “use-it-or-lose-it” rule by allowing employees to carry over up to $500 of unspent FSA balances into an FSA or HSA.
The provision has bipartisan support and is supported by most of the major employer associations. The difficulty, though, lies in the high cost of the provision and in passing the larger pension bill. However, since the bill has passed both the House and the Senate, it is expected that conferees will be appointed soon after the Members return in February. While there are clearly partisan differences in both the House and Senate bills, passing a final retirement security package will be seen as a positive development by most voting Americans, so expect the differences to be resolved in early Spring.
Health Savings Accounts
Health Savings Accounts (HSAs), which were created in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (H.R. 1), are savings accounts that are combined with a high-deductible health plan (HDHP) and are designed to help individuals save money for medical and retiree health expenses on a tax-free basis. While HSAs have been successful, there continues to be the desire to increase participation in and access to HSAs.
As if to signal that 2006 would focus on increased access to healthcare, before leaving for the winter recess Congressman Eric Cantor (R-VA) introduced The Flex HSA Act. The legislation has received a significant amount of attention and will most likely be the basis for most of the 2006 HSA changes. The bill allows greater coordination between HSAs, FSAs, and Health Reimbursement Accounts (HRAs), and provides much needed flexibility in the design of consumer-directed healthcare. These changes would allow HSA participants to use the HSA as a savings account for retiree health or long-term care needs, while using the FSA or HRA as spending accounts for immediate medical expenses. In addition, the bill increases the contribution limits for HSAs, which are currently limited by the amount of the deductible for the HDHP associated with HSA.
Significantly for small business owners, it is also likely that additional tax credits to HSA participants will be discussed. Congress and the Administration have been looking at ways to encourage HSA enrollment among small business employees and the uninsured. Therefore, the proposal is to give small business owners special tax credits on HSA contributions for the first $500 they contribute to an employee’s family policy and for the first $200 contribution to an employee’s individual policy.
Inside Washington,
With nearly 60% of the 45 million uninsured Americans being employed by small businesses and with the slow increases in wages being credited to rising healthcare costs, there is little question that healthcare legislation focusing on small-businesses will be a top priority developed in 2006.
Under new IRS regulations adopted at the end of 2005, payments made on account of sickness or accident disability under a statue “in the nature of a workers’ compensation act” are excluded from wages for FICA tax purposes. The new regulations apply to payments made on account of sickness or disability made on or after December 15, 2005.
Under IRC 3121 (a) (2) (A), payments received as workers’ compensation benefits are not included in an employee’s gross income and are not subject to any employment taxes. This exemption applies only to amounts received as compensation for illnesses or injuries suffered on the job, and only to amounts that do not exceed the benefits provided under the applicable state or federal workers’ compensation law.
The new regulations expand the exemption to include exemption of taxes for FICA purposes. Through 1989, the IRS took the position that payments made under a statue in the nature of a workers’ compensation act were excluded from gross income and exempt from FICA. In 1990, however, the IRS reversed itself and stated that such payments are included in wages for FICA purposes until the employee has been absent from work for six months. With these new regulations, the IRS has officially reversed this reversal.
IRS Issues Proposed Regulations on Discarded Entities and Employment Taxes
The IRS has issued proposed regulations under which qualified subchapter S subsidiaries and single owner eligible entities that currently are discarded as entities separate from their owners for federal tax purposes would be treated as separate entities for employment tax and related reporting requirement purposes.
Currently, because a discarded entity is not recognized for federal tax purposes, the owner of the disregarded entity is treated as the employer for purposes of employment tax liabilities and all other employment tax obligations related to wages paid to employees performing services for the disregarded entity.
The proposed regulations would eliminate disregarded entity status for purposes of federal employment taxes. A disregarded entity would be regarded for employment tax purposes and therefore, would become liable for employment taxes on wages paid to the employees of the disregarded entity, and would be responsible for satisfying other employment tax obligations.
FICA Tax Treatment of Disability Payments
Inside Washington,
New AMT Assistant Initiative on IRS.gov
Going After Non-Filers
The Treasury Inspector General for Tax Administration has issued a report indicating the IRS needs a coordinated national strategy to better address an estimated $30 billion tax gap due to non-filers. The report recommends creation of a Non-filer Program Office with responsibilities for developing strategy, implementing management control systems, and proving accountability for all of the various IRS non-filer efforts.
Standard Mileage Rates Come Down
The 2006 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes have been released by the IRS. The standard rates are:
• 44.5 cents per mile for business miles driven;
• 18 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service of charitable organizations, other than activities related to Hurricane Katrina relief. • For 2006, Katrina-related charitable rates will be 32 cents per mile for deduction purposes, and 44.5 cents per mile for
reimbursement purposes.
The Internal Revenue Service is providing a new online tool to help individual taxpayers determine whether they are potentially subject to the alternative minimum tax. The AMT Assistant helps taxpayers determine whether or not they may be subject to the AMT by automating the AMT Worksheet of the 1040 Instructions. IRS estimates most taxpayers will be able to get an answer within five to 10 minutes using the new application.
Taxpayers who file paper returns will benefit the most from the AMT Assistant because e-file software generally computes AMT liability automatically. “This new tool will help people understand if they have to pay or not,” said Mark W. Everson, IRS Commissioner. “This is part of the IRS effort to improve customer service and reduce return preparation time for taxpayers.”
The information provided is anonymous and will be used only for the purpose of determining AMT liability. It will not be shared, stored or used in any other way, nor can it be used to identify the individual who enters it.
To locate this tool enter “AMT Assistant” in the search box on the IRS.gov Web site.
Numbers Game - Mother’s Day
How Many Mothers
80.5 million
Estimated number of mothers of all ages in the United States. (Source: unpublished Survey of Income and Program Participation data)
How Many Children
2.0
Average number of children that women today can expect to have in their lifetime.
1-in-32
The odds of a woman delivering twins. Her odds of delivering multiple births of three or more babies was approximately 1-in-534.
July
The most popular month in which to have a baby, with 364,226 births taking place that month in 2003.
Tuesday
The most popular day of the week in which to have a baby, with an average of about 13,000 births taking place on Tuesdays in 2003.
Jacob & Emily
The most popular baby names for boy and girls, respectively, in 2004. (Source: Social Security Administration)
Working Moms
5.6 million
Number of stay-at-home moms in 2004. 55%
Among mothers with infant children in 2004, the percentage in the labor force, down from a record high of 59 percent in 1998.
With more and more people looking to get away, employees are using sick days as a means to take care of personal needs. In fact, many employees are unwilling to stay home when sick, opting instead to preserve this valuable time for other uses. According to a recent survey, illness accounts for only 35 percent of unscheduled absences. Other reasons given for taking off as sick time include family issues (21 percent), personal needs (18 percent), entitlement mentality (14 percent) and stress (12 percent).
Strategies to combat this tendency which results in employees working when sick, at a lower productivity level, include Paid Time Off (PTO) banks, which are gaining popularity. These banks do not differentiate between the types of absence, whether a vacation day, sick day or personal day, and do not require prior notice. From the employee’s standpoint, there is greater freedom in allocating time to personal needs, greater privacy and less pressure to “fake” illness. This translates into greater trust between employer and employee.
2006 Inflation Figures Released
Here are some of the changes released by the IRS that have been modified because of inflation. These changes are effective for taxable years beginning in 2006:
• The value of each personal and dependency exemption, available to most taxpayers will be $3,300.
• The new standard deduction will be $10,300 for married couples filing a joint return, $5,150 for singles, and $7,550 for heads for households.
Accounting Salaries on the Rise
According to Robert Half International Inc.’s 2006 Salary Guide, starting salaries in accounting and finance are projected to rise on average 3.1 percent with starting salaries for personnel involved with corporate governance initiatives – such as internal auditors, information technology auditors and public accountants – expected to see the strongest growth. In fact, IT auditors can expect the largest increase in base compensation of any position in 2006, with average starting salaries forecast to rise 11.2 percent (between $67,000 and $94,250, annually). Entry-level auditors at small companies (up to $25 million in sales) will see average starting salaries increase 9 percent (between $35,000 and $43,500 per year). Public accounting firms will be raising salaries across the board as they compete with companies in the private sector for top accounting staff.
Other key findings of the report include:
• Top managers at midsize companies will see average starting salaries of $57,750 to $74,000, up 4.6 percent.
• Entry level accountants at midsize companies will see average starting salaries between $32,000 and $38,250, up 4.1 percent.
• Mutual fund accountants can anticipate a 4.7 percent increase with a range of $38,000 to $51,250.
• Accounts receivable/accounts payable managers at small firms will see starting salaries up 5.2 percent, to between $33,750 and $41,500. Nationally, demand for accounting and finance professionals is expected to be particularly strong in the manufacturing, real estate and construction industries.
Earlier this year National Taxpayer Advocate, Nina E. Olson, released a report to Congress that urges Congress to enact fundamental tax simplification. The Taxpayer Advocate Service is an independent organization within the IRS, led by the National Taxpayer Advocate. Each state has at least one Local Taxpayer Advocate, who is independent of the local IRS office and reports directly to the National Taxpayer Advocate.
Olson’s report lists a total of 21 problems encountered by taxpayers that she says ranks as the most “serious,” including:
• Private Debt Collection – The IRS plans to begin a new program this year that will for the first time use private debt collectors to seek payment from delinquent taxpayers. Private debt collectors should get training comparable to that provided for collectors who work directly for the IRS.
• Taxes on Social Security Payments – The IRS taxes Social Security payments without sufficient review, “causing undue burden on a vulnerable population of taxpayers,” the report said.
• Refund Anticipation Loans – Most customers of these costly short-term loans have low or moderate income. Fees on the loans can equate to more than 100 percent of the loan value on an annualized basis, the report notes. The IRS could help reduce demand for the loans by speeding delivery of refunds, especially for poorer filers who may not have bank accounts.
• Identity Theft – The IRS needs to do a better job coordinating help for victims of this crime, the report said.
In particular, Olsen detailed the Questionable Refund Program in her report. Olson noted that in a random survey of affected taxpayers 80 percent eventually got some or all of the requested refund. The issue is that they had to wait an average of more than eight months to receive the money owed by the IRS. The taxpayers in the sample had a median adjusted gross income of $13,330, and the median refund ultimately received was about $3,500, indicating that the affected individuals suffered “significant hardship” due to the delay, Olson said in her report.
The IRS said the sample was biased because it was based on people who sought the help of the Advocate’s Office, and so were more likely to be innocent.
The National Taxpayer Advocate’s 2005 Annual Report to Congress and Executive Summary can be found on the Internal Revenue Services Web site www.irs.gov.
National Taxpayer Advocate Releases 2005 Report to Congress;
Stresses Need for Fundamental Tax Simplification
For more information on the Ceridian products related to articles in this newsletter, including:
• Payroll & HR Solutions • Tax Filing • Talent Acquisition & Management, visit www.myceridian.com
© Copyright 2006. Accountability is published by Ceridian and produced by PFS Marketwyse. We have no reason to believe that there are any errors in the information presented here. However, no action should be taken without first consulting with a qualified professional.
