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Lawmakers, small businesses take steps to blunt IRS rule

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LISA COCHRAN

By JACK WEATHERLY 

Lisa Cochran, owner of two hair salon and spa shops called The Studio in Hattiesburg, said that she has been helping her employees for years by contributing $50 a month toward their health coverage premiums.

Then she saw an article in the Mississippi Business Journal and has taken steps to avoid a calamity.

She realized that she stood to be penalized — and put out of business – if she kept helping her 19 employees.

The $50 subsidy has stopped. “We’ve already changed our employee handbook,” she said.

She had even tried to set up a group policy for her workers but did not meet the threshold of 75 percent participation.

» READ MORE: IRS drops a bomb on small employers

The IRS passed a rule that went into effect July 1 that calls for a $100 per day per worker tax  if small businesses subsidize their workers’ health-care costs. The IRS considers that, in effect, a group policy and does not meet the standards of the Affordable Care Act.

“I had no idea. I do not get that thinking,” Cochran said.

The tax would be $1,900 a day. “It would put me out of business,” she said of the 35-year-old concern.

Cochran says she prides herself in being IRS compliant. For example, she reports the tips her stylists get.

Plus, she offers a retirement plan and six weeks’ paid maternity leave and up to three weeks’ paid vacation.

“We’re trying to do the right thing by being a progressive company but we get  penalized for encouraging our employees to get health insurance.”

The majority of the 2,800 Mississippi members in the National Federation of Independent Businesses have fewer than 50 employees, according to Ron Aldridge, state director.

And roughly one in seven of them reimburse their employees for medical expenses, Aldridge said.

Legislation has been introduced in Congress to undo what would prove to be a crippling if not fatal tax that the IRS has imposed on small businesses.

Called the Small Business Healthcare Relief Act, it would amend the IRS code and the Affordable Care Act to allow businesses with fewer than 50 employees to make contributions to employees to defray their health-care costs.

Aldridge said he is hopeful that the legislation will be approved because there is “significant bipartisan support” in Congress.

The law would require that employees prove they have individual health policies in line with the Affordable Care Act — which had specifically excluded businesses with fewer than 50 employees from the health-care mandate.

But the IRS said that many of those businesses were, in effect, engaging in unsanctioned group policies by subsidizing their employees.

House Resolution 2911 and Senate Bill 1697 are in committee in their respective houses. Efforts to contact Rep. Charles Boustany, R-La., lead sponsor on the House measure, were unsuccessful.

“I don’t anyone thought it would be a good idea to punish small employers for doing what doing what everybody in Washington claims to want,” said Jack Mozloom, national media director for the National Federation of Independent Businesses.

“It’s a strange interpretation by the IRS because that’s precisely the consequence, because they are punishing employers who cannot afford to buy a group plan,” Mozloom said in an interview.  “And not only are they punishing them heavily but far more heavily than they’re punishing far larger employers who simply opt not to provide any insurance at all.”

The fine called for under the Affordable Care Act for employers with more than 50 workers  is $2,000 per worker per year. The tax that stands to be imposed on the small employers is 18 times that, $36,500 per worker per year, Mozloom noted.

The IRS did not respond to a question posed to them by the Mississippi Business Journal as to why the rule was imposed.

The NFIB likewise got no answer to that question, Mozloom said.

“My guess is it’s a natural bureaucratic instinct when confronted with something they don’t understand and can’t keep track of, they just simply think: ‘Well, we’ll just ban it.’”

“They realized that they are potentially hundreds of thousands of small-business owners in this situation acting sort of anonymously without their supervision or approval.”

About Jack Weatherly

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