As we move forward into 2013, there will be changes to your payroll and income taxes along with implementation of portions of the Affordable Care Act (ACA). While many questions remain, here are some things we know for sure at this point.
One of the bright spots that we see in all of this is that many of the current tax code changes are permanent. Unlike similar tax laws in the past, the new tax rates are permanent under the American Taxpayer Relief Act (ATRA) of 2012. For most business owners, this really helps. If we know what the rules are, we can adapt and go back to doing business.
So here are some of the basics of ATRA:
Tax rates of 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent for various income levels will remain in effect with no expiration date. There is, however, a new tax rate for those earning over $400,000 — $450,00 for a couple. The old rate was 35 percent. The new rate is 39.6 percent on earnings over the $400,000 and $450,000 marks.
Social Security payroll deductions will increase for all employees from the temporarily lowered rate of 4.2 percent back up to the recent regular rate of 6.2 percent. In addition, the Social Security withholding ceiling increases from $110,100 to $113,700.
Educational and adoption assistance exclusions were set to expire, but are now permanent. The exclusion is $5,250. If an employer helps with education or provides adoption assistance to an employee, the employer is able to show this as an expense and the employee doesn’t show the amount as income.
Retirement plan accounts are affected as well. Under ATRA, employees can now transfer money in 401(k), 403(b) or 457(b) plans into a Roth account. The Roth plan must be qualified and transfers are treated as rollovers. This requires the employee to pay taxes on the funds rolled over.
The good news is that in a Roth account, no taxes are due when the funds are withdrawn as income during retirement. It could be cheaper to pay taxes now than in the future.
The Colorado Department of Labor and Employment offers employers some good news as well. Colorado was able to pay its obligation to the federal government on a loan to cover unemployment benefits. What this means is that soon there will be no more penalties to employers related to Colorado unemployment.
What will we have to do with regard to health care reform under the ACA? A couple of weeks ago, we attended a seminar put on by the director of the Colorado Insurance Exchange. We also went to a very informative meeting at Home Loan Insurance with its experts. The bottom line is there’s a great deal that’s still undecided and unclear.
It’s frustrating for those trying to develop a health care exchange for Colorado as well as for insurance professionals. Congress has mandated hundreds of rules that will require forms and organizations. In most cases, there are no forms or organizations to support those rules. This will be a long process.
On the insurance question, I checked with Home Loan and asked what’s known for sure at this point. Home Loan has taken the lead locally to keep folks up to date on changes related to the ACA.
The ACA calls for the creation of state-based competitive marketplaces, known as affordable health insurance exchanges, for individuals and small businesses to purchase health insurance.
Those exchanges must be ready to accept enrollees on Oct. 1, 2013. Individuals and employers with less than 50 employees can purchase coverage through the exchange. The initial enrollment period is Oct. 1 to December 31, 2013. The effective date of coverage through the exchange starts Jan. 1, 2014.
Once all rules have been finalized and exchanges are operational, employers will be required to report new information to the exchanges and IRS to help them determine individual eligibility for tax credits and liability for tax penalties.
This is but a very short list addressing concerns for the small employer of less than 50 employees. Larger employers have more with which to be concerned.
For 2013, large employers will see a number of new fees and taxes come into play. The trick will be to stay ahead of the curve and learn how to play under the new rules. The game of being in business is going to get more complicated and expensive.
We work diligently to stay on the cutting edge of these issues by learning from experts who’re in the trenches. And the fact is, even they don’t have a lot of answers right now. Sadly for business, the words of former House Speaker Nancy Pelosi ring true: We’re going to have to pass this legislation to find out what’s in it.