The Affordable Care Act (ACA) Individual Mandate requiring most individuals to obtain qualified health care coverage or pay a penalty went into effect January 1, 2014. Self-employed estheticians, including partners and sole proprietors, two-percent shareholders in S corporations and five-percent owners are not treated as employees. In fact, a special rule prevents sole proprietors—and their family members—from receiving the Small Employer Health Insurance Credit.
Today, as many skin care facility owners and estheticians attempt to deal with the burdensome rules, taxes and premium hikes of ACA, costs continue to escalate and confusion reigns. Appellate courts have issued two contrary opinions on whether subsidies for qualifying individuals are legal, which might throw the subsidy issue before the U.S. Supreme Court.
The ruling also threatens to gut the ACA requirement that starting next year, all employers with 50 or more full-time workers offer affordable insurance or face fines—a rule that only kicks in if one of an employers’ workers buys subsidized coverage on www.healthcare.gov.
Self-employed estheticians or owners can deduct the cost of health insurance for themselves and their dependents. Thus, if an S corporation pays accident and health insurance premiums on behalf of a more-than-two-percent shareholder who is also its employee and who must include the value of the premiums in her gross income, the shareholder is permitted to deduct the cost of the premiums paid on her behalf.
Among the ACA provisions that every spa owner should be aware of include the following:
- The Employer Mandate, which requires large employers to offer qualified heath-care coverage to employees and their dependents or pay a penalty;
- Employers are required to withhold additional Medicare tax on high-income workers;
- Expanded W-2 requires employers to include the total cost of employer-sponsored health insurance coverage; and
- Contributions to health Flexible Spending Arrangements (FSAs) were adjusted for inflation to $2,500.
Small Business Health Options Program (SHOP) Marketplace
The SHOP Marketplace is designed to help business that lack the purchasing power of larger employers provide affordable health coverage for their workers. The SHOP Marketplace is open to employers with 50 or fewer full-time-equivalent employees (FTEs). Those with fewer than 25 employees may qualify for tax credits if insurance is purchased through SHOP. Unfortunately, a self-employed esthetician with no employees cannot get coverage through SHOP and must instead turn to the individual market Health Insurance Marketplace.
An employer with 25 or fewer full-time employees and average compensation of $50,000 or less is eligible for a 35% tax credit for premiums paid toward employee health coverage, increasing to 50% if the employer participates in an insurance exchange.
Unlike most tax credits that merely reduce the final tax bill, even a small business employer who did not owe tax during the year can carry this unique credit back or forward to other tax years. Since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can claim a business expense deduction for any premium payment amounts in excess of the credit. That’s both a credit and a deduction for employee premium payments.
Some small businesses, notably those with fewer than 25 full-time equivalent employees, are eligible for a tax credit if they contribute more than half of the cost toward their employees’ health insurance.
Every individual is now required to have health insurance or face increasingly more expensive penalties. Independent skin care professionals mostly escape the massive regulations imposed on larger employers. They also can take advantage of a number of tax breaks to help reduce the cost of insurance coverage. To fully reap the full benefits and avoid potential pitfalls, professional assistance is strongly recommended.