Barbara’s Blog

So the U.S. Supreme Court says Obamacare is constitutional. What does this mean for you and your business?

Here are 5 results of this court decision that are problematic to me.

1. The IRS governs health care?

Apparently so, according to the Supreme Court’s ruling that the individual mandate is constitutional. The rationale for upholding the mandate: the penalty that individuals will have to pay if they don’t have required medical coverage starting in 2014 is merely a tax. And who’s going to collect the tax? The IRS!

While the law prevents any criminal action for those who won’t pay the penalty, who knows how enforcement by the IRS will be actualized. Will the IRS ultimately be able to say what medical treatments will be covered by insurance?

2. There’s a loss of privacy for your tax return

Currently, your personal and business tax returns are subject to strict privacy rules. If IRS employees divulge any information, there are serious consequences. Now, under Obamacare, the IRS must tell the “Health Choices Commissioner” and state health programs about taxpayers, including their filing status, modified adjusted gross income, the number of dependents, and “other information as prescribed by” regulations (Secs. 431(a) and 245(b)(2)(A)) of the Patient Protection and Affordable Care Act) (purportedly to verify new tax credits for those who cannot afford to pay health premiums). Also, the Social Security Administration can obtain from the IRS tax data on anyone who may be eligible for the low-income drug subsidy under Obamacare (Sec. 1801(a) of the Act). In sum, tax information is no longer confined to the IRS; it will be shared with certain other government agencies.

In this environment of increasing identity theft, there has to be concern about more eyes on a tax return.

3. Health care premium costs are not coming down anytime soon

The theory about the personal mandate lowering costs, if I have it correct, is that with more people being brought into the insurance pool, premiums will fall. I haven’t seen any indication of that yet. Of course, the mandate is not set to take effect until 2014, so for now the premiums for self-employed individuals and small businesses are continuing to increase.

4. There are increased tax burdens on many small business owners

Earn $200,000 in salary from your business or self-employment activities as a single person and you will pay an additional 0.9% Medicare tax starting in 2013. (The threshold for the tax for married persons filing jointly is $250,000, or $125,000 for those filing separately.) This tax is on top of the basic Medicare tax of 1.45% (or 2.9% if you’re self-employed) that you already pay, and it’s not deductible.

If you do your payroll in-house, you’ll probably have to start soon to get ready to withhold the additional Medicare tax for employees with wages over the threshold amount.

5. There’s still uncertainty

While the legal challenge to Obamacare is settled, the political challenge has just begun. If there are significant changes resulting from the November election, Obamacare may be repealed with the expectation of replacing it with another health care law. Whether there will be such a political shift, and if so, what, when, and if such new law is enacted, leaves us with uncertainty about tax-related provisions. Are current tax rules to be changed? Will good provisions in Obamacare that have already taken effect, such as coverage for a child up to age 26 on a parent’s medical plan, be retained?

Bottom line

What’s that adage about good intentions and some road? There has to be a better way to bring the cost of medical coverage down and make it available to those who are presently uninsured.

October 3, the first Monday in October, is the start of the new term for the Supreme Court. Each year the court accepts only a handful of cases that matter to small business. This year, two cases to watch include:

• Obamacare. The NFIB and 26 states have filed a petition for certiorari for the case decided in the 11th Circuit; the Department of Justice has also filed a petition for the same case (see the write-up by the Heritage Network). This means that the Supreme Court is more likely than not to accept the case and hand down a ruling on the constitutionality of the personal mandate in the health care reform act by the end of June 2012.

• Home Concrete. This case concerns whether the understatement of basis in property amounts to an omission from gross income that gives the IRS six years (instead of three years) to audit a return. (Those who are interested can read the petition for a writ of certiorari.) The government’s opening brief is due November 14. The case likely will be argued in January or February 2012. A decision will come some time before the end of the court’s term at the end of June 2012.

Before too long, there may be a few other business-related cases that the court will agree to review this term. I’ll keep you posted!