Another year, another tax season, more unjust taxes on the small business community. Despite stepping out of the unemployment line and into a new, job creating small business on Main Street, small business owners could be hit with another unfair tax this year when they file their returns.
As I wrote in a recent guest opinion piece for the Las Vegas Review Journal, an unintended consequence of the Affordable Care Act has dealt a devastating blow to the use of HRAs by the small business community. Due to an IRS interpretation of the new health care law, small business owners, for the first time this year, who offer their employees HRA accounts could face thousands of dollars in unjust tax liability:
Health Reimbursement Arrangements have historically been a powerful and effective tool for the small business community to do right by their employees, 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 premiums and other out-of-pocket medical expenses. Part-time and seasonal employees have often relied on HRAs for vital health care support. HRAs are fair and impartial, because you must offer the same amount to each employee who has an HRA account.
There is a movement within the U.S. Congress to fix and reverse this tax through bipartisan legislation known as the Small Business Healthcare Relief Act. This bipartisan bill would allow small business to continue to use HRAs without penalty or fine. Members of both houses of Congress, led by Senators Chuck Grassley (R-IA) and Heidi Heitkamp (D-ND), have the ability to not only move this measure forward, but also recruit their colleagues to support it. We join them in encouraging Sens. Orrin Hatch (R-UT), James Risch (R-ID), Tom Carper (D-DE), and Harry Reid (D-NV), to back this legislation.
In the Quad-City Times in Davenport, Iowa, I outline why this penalty on small business owners who just want to help their employees is real:
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 nine 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.
Our nation's smallest businesses, from the self-employed to micro-businesses with up to nine employees, are part of the largest small business demographic. According to the latest U.S. Census figures, small businesses account for 78 percent of the entire business community, representing over 27 million entities nationwide. In fact, the self-employed are growing at a top rate of 2.8 percent over the last ten years - more than any other small business group.
Now is the time for our leaders in Congress to step up and pass bipartisan legislation to ensure our small business community thrives. We need our elected officials to support our community and not allow the IRS to force another unfair tax on the engine of the middle-class economy.