Can Europe’s Problems Slow Construction in the United States?

Small Business Health Insurance Credit

The new health care reform law offers a tax credit to small businesses that provide health care insurance coverage to their employees. The new law allows a small business to claim a federal tax credit of up to 35% of the amount the business spends on health insurance for its workers. The rules are complex, but for a business to qualify for the tax credit, it must have no more than the equivalent of 25 full-time employees and pay them average annual wages of $50,000 or less. The employer must contribute at least 50% of the total premium cost. Business owners and family members aren’t considered employees for credit purposes, and premiums paid on their behalf aren’t eligible for the credit. A family member is defined as a child (or a descendant of a child), a sibling or stepsibling, a parent (or ancestor of a parent), a stepparent, a niece or nephew, an aunt or uncle, a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.

Small Businesses and Job Creation

Firms with fewer than 500 employees accounted for 64% (or 14.5 million) of the 22.5 million net new jobs generated between 1993 and the third quarter of 2008, according to data from the U.S. Department of Labor, Bureau of Labor Statistics.

New Medicare Taxes on Wages and Investment Income

Two new Medicare tax increases were included in the recently enacted health care reform law, the Patient Protection and Affordable Care Act, as amended. Since the tax increases are targeted toward higher income taxpayers, you and your company’s key employees may be affected. Here are the details:

Additional Hospital Insurance Tax. The new law mandates that individual taxpayers who earn more than $200,000 annually, married taxpayers who file jointly and earn more than $250,000 and married taxpayers who file separately and earn more than $125,000 will pay higher taxes on a portion of their wages beginning in 2013. Taxpayers in these categories will have to pay an additional Medicare tax equal to .9% of their wages above the relevant threshold amount for their filing status. This effectively raises the Medicare tax rate from 1.45% to 2.35% on those earnings. The employer portion of the Medicare payroll tax is not affected by this change and will remain at 1.45% of earnings (with no cap). If you are self-employed, you will be liable for an additional tax of .9% of your self-employment income to the extent it exceeds the relevant threshold amount. You won’t be able to deduct the additional self-employment tax.

Surtax on Investment Income. The new law also imposes a 3.8% surtax, referred to as the “unearned income Medicare contribution,” on the investment income of higher income individuals, estates and trusts. The surtax also becomes effective in 2013. For individuals, the tax is equal to 3.8% of the lesser of (1) net investment income for the year or (2) the amount by which modified adjusted gross income (AGI) exceeds an annual threshold amount. The thresholds are the same as those used for the additional Medicare tax on earnings, and they are not adjusted for inflation. Net investment income includes gross income from interest, dividends, annuities, royalties, rents, net capital gain and income earned from passive trade or business activities. However, you should be aware that the 3.8% surtax does not apply to qualified retirement plan and individual retirement account distributions.

Please contact us to discuss any of these issues.