Note: the following blog was published as an Op-Ed in the Delaware News-Journal, the statewide newspaper in Delaware, on February 22, 2016.
In the next few months, thousands of small business will file their tax returns across Delaware. But this year, on top of the myriad complex tax liabilities and unequal deductions forced onto small business owners, they now face another unfair tax by the Internal Revenue Service (IRS): a penalty for offering health care support to their employees.
You may be a local baker who wants to offer financial help to cover the costs of doctor co-pays or deductibles for the part-time, seasonal college student who works in your bakery; or the consultant who wants to help cover the prescription costs of a retired, part-time secretary on a fixed budget. Unfortunately, Delaware small business owners trying to do right by their employees may instead end up owing thousands of dollars in taxes.
Here’s the rub. This IRS interpretation of the Affordable Care Act has dealt a devastating blow to the small business community by virtually eliminating the use of a traditionally used health care tool for millions of small business employees.
Health Reimbursement Arrangements have historically been a very powerful and effective tool for the small business community to do right by their employees by helping them pay for crucial health care needs. Under these programs, small employers who cannot afford to provide comprehensive health coverage have offered financial assistance to their employees to help defray the high cost of health insurance premiums and other out-of-pocket medical expenses. Part-time and seasonal employees have often relied on HRAs for vital healthcare support. HRA’s are fair and impartial because you must offer the same amount to each employee who has an HRA account.
After a small delay in enforcing this new unfair tax last year, the IRS is now ready to penalize small businesses that offer this important financial support to their employees. Many of our policymakers were alarmed by this penalty, and began to address the situation in Washington. A group of legislators in both the House and Senate of all political stripes introduced a bipartisan solution to fix this glitch, the Small Business Healthcare Relief Act, which would allow small business to continue to use HRAs without penalty or fine.
One of those lawmakers is Sen. Chris Coons, who has the ability to move this important bipartisan legislation forward. As the leading co-sponsor, he can not only level the playing field for the small business community, but also restore the integrity and intent of the new health care system. The American small business community nationwide – and throughout Delaware – are urgently counting on the Senator to move this bipartisan bill by encouraging and recruiting his fellow colleagues – including Sen. Tom Carper – on both sides of the aisle to support this much needed fix.
This new unfair IRS tax is just another example of how those on Main Street continue to lose. Despite being part of one of the fastest growing small business sectors, sole proprietors and businesses with 9 or fewer employees are treated unfairly and unequally. Offering crucial, yet minor financial assistance to cover health care costs to employees may seem like a small feat, but it could make a big difference in the lives on these workers.
The threat of IRS penalties has become real. For example, a small business owner who is currently offering an HRA to his employees will owe the IRS on average a whopping $182,000 as of July. This price tag will increase to more than $366,000 by the end of the year. Small employers cannot afford these outlandish fines and will ultimately be forced to stop offering HRAs.
There are over 15,500 small businesses (including the self-employed and micro-businesses) across the First State. They represent the true entrepreneurial spirit of America, many who have stepped out of the unemployment lines and into a new business. Now is the time to stand up for them by protecting them from being fined for providing their employees with an HRA.