Obama 2014 Budget Proposal – Impact for Employers
Employer Impacts for 2014 Budget Proposal
President Barack Obama has sent the US Congress his proposed budget for 2014 and it has some significant impacts and opportunities for small employers.ÿWhether these provisions actually become law remains to be seen, however, HR and business managers of small and medium sized companies need to be aware of what may be coming down the road.ÿBusiness owners should review the highlights listed below and start planning now for how these items may impact their companies and what processes will need to be implemented or revised in order to ensure regulatory compliance.ÿCompanies using a PEO should review the items below and discuss them with their PEO HR advisor to understand how their PEO will be addressing these items on the client’s behalf.ÿ
Payroll Tax Credit
Incentivize small business hiring and wage increases with a one-time, temporary 10% payroll tax credit for increases in companies’ wage payments over wages paid in 2012, whether driven by new hires, increased wages or salaries, or both. The credit would be available to small businesses (those with less than $20 million of total wages paid in 2012) for up to $5 million of increased wages.
Areas of Impact: Taxes, FICA Payments, Labor Accounting
Notes: This credit will only apply for wages increased over the 2012 gross wages for the company. Companies that are growing may see a significant value in the tax credit.ÿ Businesses using a PEO should ask their PEO to calculate the credit based on the wages and ensure that they get reimbursed by their PEO.
Employee Benefits Impact
Encourage retirement savings with automatic individual retirement accounts (IRAs) and support for small employers who offer retirement plans by automatically enrolling workers without employer based retirement plans in IRAs through payroll deposit contributions at their workplace. The contributions would be voluntary; employees would be free to opt out and matched by the Saver’s Tax Credit for eligible families. Small employers would be eligible for tax credits to defray the administrative costs of setting up these savings plans. The budget would also double the existing tax credit for small employers that start up new qualifying employer plans.
Areas of Impact: Employee Benefits, Taxes, HR, Payroll Systems
Notes: Companies without a 401K plan for their staff may see significant credits available if they do set up a plan. Offering a qualified retirement savings plan to employees may make them eligible for the Savers Tax Credit and help them reduce their income taxes. Businesses using a PEO should ask their PEO how the automatic enrollment will be enabled through their new-hire process or through the PEOs annual open enrollment process.
Tax Credit for Small Businesses Providing Health Insurance
Expand and simplify the small business health care tax credit established in the Patient
Protection and PPACA (PPACA) that covers up to 35 percent (rising to 50 percent in 2014) of an eligible employer’s premium contributions towards their employees’ health insurance by expanding the tax credit to additional employers (including increasing the eligibility cut off from 25 to 50 workers), changing the phase out formula so firms that appear eligible will qualify for some credit, and simplifying the calculation of the credit (by removing a requirement that an eligible employer pay a uniform percentage of theÿ premium for each employee and also eliminating a cap on the credit based on the average health insurance premium in the employer’s state). This would provide an additional $10 billion in tax relief to small business owners over the next 10 years.
Areas of Impact: Employee Benefits, Taxes, HR, Payroll Systems
Notes: This is a change of the PPACA impact for small companies.ÿ Rules and processes for handling the compliance and costs are not well defined. Managers should consult with their PEO advisor, accountant or insurance agent to understand the impact for their company.
Impact for Employees of Businesses That Do Not Offer Health Insurance
Implement some of the most important pieces of the PPACA legislation, including: providing access to affordable, comprehensive coverage through health insurance marketplaces, also known as affordable insurance exchanges; prohibiting insurers from denying coverage or charging more to any person due to a preexisting condition or their gender; limiting annual benefits; and increasing the level of scrutiny and transparency to health insurance rate increases by evaluating large premium increases proposed by health insurance companies to make sure they are based on reasonable cost assumptions and solid evidence.
Areas of Impact: Employee Benefits, Insurance Plan design, HR Compliance
Unemployment Insurance – Big Changes
Reinstate and make permanent the 0.2% FUTA surtax to provide short term relief to employers by suspending interest payments on State UI debt and suspending the FUTA credit reduction for employers in borrowing states in 2013 and 2014. The budget also proposes to raise the FUTA wage base in 2016 to $15,000 per worker paid annually, index the wage base to wage growth for subsequent years, and reduce the net federal UI tax from 0.8 percent (after the proposed permanent reenactment and extension of the FUTA surtax) to 0.37 percent. States with wage bases below $15,000 would need to conform to the new FUTA base. States would maintain the ability to set their own tax rates, as under current law. The proposal would be effective upon the date of enactment. Provide nearly $1.8 billion for DOL’s worker protection agencies to protect the health, safety, wages, working conditions, and retirement security of American workers. The budget preserves recent investments in rebuilding DOL’s enforcement capacity and makes strategic choices to ensure funding is used for the highest priority activities.
Areas of Impact: Taxes, HR
Notes: Many small businesses have been hit with additional bills from the federal government for FUTA taxes. In states where the fund has borrowed money from the federal government to cover their depleted SUTA (State Unemployment Taxes) funds, the federal government has been charging additional amounts to the business owners.ÿ While this proposal lowers the FUTA rate for businesses in many states the wage based used to calculate the tax will increase.ÿ Low wage employers and employers with many part time staff will see the largest tax impact.ÿ Clients using a PEO should remain unaffected if they are in state that allows PEO client level SUTA reporting.
Federal Minimum Wage Increase
Raise the federal minimum wage from $7.25 to $9.00 per hour by the end of 2015, and index it to inflation thereafter.
Areas of Impact: Taxes, HR, Labor Costs, Payroll Systems
Notes: Employers should note that the mandated minimum wage will be INDEXED to inflation thus ensuring an annual update to payroll systems to maintain compliance.ÿ Also remember that the employer’s portion of FICA, FUTA and SUTA will be increasing as the minimum wage increases.ÿ The financial impact is not just about the wages.
Programs for Hiring Veterans
Improve career transitions for newly separated veterans by redesigning veterans’ transition assistance in a new program to be known as “Transition GPS (Goals, Plans, and Success).” The new program is designed to help service members more effectively capitalize on the skills they have developed through their service and provide increased access to intensive DOL reemployment services for post 9/11 veterans. It also will help employers take advantage of tax credits for hiring veterans, and continue to connect veterans with disabilities or other barriers to employment. Extend and make permanent the Work Opportunity Tax Credit which includes the Returning Heroes Tax Credit providing up to $5,600 to employers, and the Wounded Warrior Tax Credit, providing up to $9,600 to encourage companies to hire long term unemployed veterans with service connected disabilities, as well as other categories targeted to hiring veterans.
Areas of Impact: Taxes, HR, Employee Training
Notes: Given the
draw-down of the Unites States Marine Corp and the US Army, many returning veterans will be available for employment and the tax credits are significant.ÿ PEO clients should ensure their hiring forms include notation of the applicants veteran status and ask their PEO how to calculate and will receive the tax credit.
Retirement Planning and 401K Plans
Prohibit individuals from accumulating over $3 million in tax preferred retirement accounts by limiting an individual’s total balance across tax preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement,
or about $3 million for someone retiring in 2013.
Areas of Impact: HR, Employee Benefits, Retirement planning.
Notes: It is unclear how employers would be made aware that their employee had reached the maximum retirement fund(s) value and therefore prevent the employees IRA payroll deduction and contribution.ÿ ÿMany employees may have multiple IRA, SEP IRA and 401K plans spread with many entities and the current employer would unable to make an assessment of the employee’s eligibility for further contributions.
Other Employer Incentives
Offer tools to nurture entrepreneurs and grow small businesses through tax changes,such as eliminating capital gains and extending expensing for small business investments, and doubling deductions for startup expenses, as well as increased SBA resources for financing and technical assistance. Create a “Pathways Back to Work Fund” that will offer incentives to hire the long term unemployed and low income adults, help low income youth find summer and year round jobs, and provide the real world skills needed to find a job.