Healthcare Reform: Preparing for Some Choppy Waters

We've touched on some opportunities health care reform presents, keeping in mind the resourcefulness of our small business community. Many of the provisions of the $940 billion legislation won't kick in until 2014 and the IRS Commissioner Doug Shulman has recently stated that much of the agencies’ time will be devoted to further clarification on the implications and enforcement of the HealthCare Reforms the Patient Protection and Affordable Care Act. Today we’ll briefly look at some of the immediate reactions and impacts on large businesses and ‘high income’ earners.

While not often mentioned until recently, perhaps the biggest victims will be American corporations that have large workforces of low-wage labor. For example, think about restaurant chains. It appears to us that they will be forced to buy health care for their employees. That cost will not be immaterial relative to their overall employment cost. In her April 26, 2010 ‘The Street’ article Doing the Dow Math on Obamacare, Lauren Tara LaCapra points out the exposure of companies in Dow Jones Industrial Average to Healthcare Reform write-downs.

• AT&T (T) wins the prize for most stunning disclosure so far, a $1 billion charge.
• The telecom giant was joined by Boeing (BA), Caterpillar (CAT), AK Steel (AKS) and 3M (MMM), all of whom have outlined write-downs ranging from $85 million to $150 million.

Remembering that the new law requires require companies to offer health care to anyone working more than 30 hours a week, or face stiff penalties. That's a charge no business with more than 50 employees will be able to avoid.
If you're a high-earning entrepreneur, brace yourself for a significant tax whammy under the bill. Remember the affluent will foot the bill. To finance the reform, here are a few important details to keep in mind:

• The bill includes a 0.9% incremental payroll tax on earned income in excess of $200,000 for individuals and $250,000 for families. In addition, the act imposes a tax of 3.8% on unearned investment income for individuals with adjusted gross income above $200,000 and $250,000 for families. These new taxes are effective beginning in 2013.
• Many believe, as I do, that Congress will permit the Bush tax cuts to expire in 2010. ‘High earners’ will face an even greater tax bite if there is a rollback of President George W. Bush's tax cuts, as President Obama has proposed. The top tax rates would increase from 33% and 35%—rising to 36% and 39.6%—while the top tax on capital gains and dividend income would jump to 20%, from 15%.
• Also starting in 2013, the Medicare hospital insurance tax on wages will rise to 2.35%, a 0.9% increase, on earnings that exceed $200,000 for individuals or $250,000 for couples filing together. Single taxpayers bringing in $500,000 would, for instance, pay an extra $2,250, according to calculations by Deloitte. These same taxpayers could also be hit by a 3.8% tax on investment income.

Elaine Pofeldt, in her Crains NY business March 24, 2010 post, points out that “From an accountant's point of view, all of the taxes are hitting the same tax bracket.”

The unfolding reactions of both the large companies and ‘high-earning’ individuals points to the need for business owners and individuals to seek out tax planning to see if it pays to accelerate income in 2010 and beyond.

Please add your perspectives and comments on Healthcare Reforms implications for large businesses and ‘high-earning’ individuals.