As we begin the New Year, there are three priority areas that are critical to monitor and keep abreast of: The Affordable Care Act; the Defense of Marriage Act; and IRS activity. While these are areas of interest that many businesses are already familiar with, 2014 is expected to be a year in which significant changes take effect. Regardless of the amount of preparation that has already taken place, clients will need your help to ensure the changes they’re making are implemented properly and with as little risk as possible.
Following are the three issues Entrepreneurs and their accountants need to stay up-to-date on for 2014:
• The Affordable Care Act: Numerous provisions related to health care reform continue to affect small business owners and their employees. Beginning this year, most individuals will be required to carry insurance for themselves and their dependents or potentially pay a tax. While small business owners aren’t required to offer insurance to their employees, those that already chose to will need to comply with reforms that take effect this year. Although the reporting and enforcement of the Employer Shared Responsibility provision was delayed until 2015, employers should determine their applicable large employer status and ensure that appropriate tracking of employee hours begins in 2014. A significant clarification regarding Flexible Spending Accounts (FSAs) for 2014 is that employers offering a health FSA must also offer group health insurance coverage.
Also changing this year is the small business tax credit for employers that offer health insurance coverage. To qualify for the tax credit, coverage must be purchased through the Small Business Health Options Program (SHOP) marketplace or be certified for SHOP-eligible coverage in states that have federally facilitated SHOP marketplaces.
• The Defense of Marriage Act (DOMA): The Supreme Court’s ruling in 2013, which expands the federal definition of marriage to include same-gender spouses, has a significant effect on federal laws including payroll taxes and health insurance, and employment laws such as the Family Medical Leave Act (FMLA). Affected employees are now eligible to pay for same-gender spousal benefits such as health insurance premiums and FSA/Section 125 participation on a pretax basis for federal taxes. Individuals whose legal spousal status was changed by the ruling also have the option to claim refunds and/or request adjustments due to overpayment of FICA taxes, and employers may be entitled to a refund of federal unemployment tax on wages paid to legally married same-gender spouses. Regarding state taxes and withholding on the state level, this will vary depending on whether a state recognizes same-sex marriages and chooses to follow federal rules.
• IRS Priorities: The United States Supreme Court will begin hearing arguments this month to determine if severance pay should be taxable or exempt from FICA tax. If the Court rules against the IRS, the agency will need to process retroactive refund claims submitted by employers and employees. These claims could reach a total in the billions, and cause the IRS to lose a major source of future revenue. The IRS has also announced its intent to more closely examine the taxation of tips and service charges in 2014. This will be important to industries where tipping is customary such as the hospitality and restaurant industries.
It is important to stay abreast with how these items progress for effective tax planning. Keep in touch regularly with your CPA to make sure he/she keeps you informed!