In the next couple of months, thousands of small business will file their tax returns across Nevada. But this year, on top of the myriad of complex tax liabilities and unequal deductions forced onto small business owners, they now face another unfair tax by the Internal Revenue Service: a penalty for offering health care support to their employees.
You may be a local baker who wants to offer financial assistance 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, Nevada small business owners trying to do right by their employees may instead end up owing thousands of dollars in taxes.
This is due to an IRS interpretation of the Affordable Care Act that 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 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.
After a short delay in enforcing this 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, D.C. A bipartisan group of legislators in both the House and Senate introduced a 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.
Senate Minority Leader Harry Reid, D-Nev., has the ability to move this important bipartisan legislation forward by becoming a co-sponsor of the effort. 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 small business community – throughout Nevada and nationwide – is urgently counting on Sen. Reid to move this bipartisan bill by supporting it and encouraging his fellow colleagues on both sides of the aisle to get behind this much needed fix.
This 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 receive unfair treatment. Offering crucial yet minor financial assistance to cover health care costs to employees might seem like a small feat, but it could make a big difference in the lives of these workers.
The threat of IRS penalties has become real, as it could hit small business owners with fees running into the hundreds of thousands of dollars. Small employers cannot afford such outlandish fines and will ultimately be forced to stop offering HRAs.
There are more than 35,000 small businesses (including the self-employed and micro-businesses) across Nevada. They represent the true entrepreneurial spirit of America, with many owners having stepped out of the unemployment line and into a new business. Now is the time to stand up for these small business owners, by protecting them from the IRS and allowing them to provide employees valuable HRAs.
Katie Vlietstra is vice president of government relations and public affairs for the National Association for the Self-Employed, the nation’s leading advocate and resource for the self-employed and micro-business community.