Pity the small business. The federal government treats small business owners as cheats and shows them no mercy. Every month small businesses regardless of size must file payroll taxes which include the other 7.5% of each employee’s FICA plus withholding taxes. Every quarter the business also must file estimated taxes for the current fiscal year. Life is simpler for W-2 employees. Most of the work is hidden from them because if the average worker was responsible for carrying his or her share of the burden to comply with local, state and federal regulations, there would be riots in the streets. So instead governments burden the employers who must write it off as the cost of doing business in our society, and workers believe their tax refund is a “gift” from a benevolent government.
Much is being said about Matt Drudge’s “Liberty Tax”, and it’s clear that none of the critics have ever had to file a small business corporate return. If they had they’d understand how taxes are collected in this country and would recognize that Drudge isn’t lying. One issue I haven’t seen mentioned, however, is the individual penalty. Although Congress has raised the issue of delaying the individual penalty for those who opt out of Obamacare, it doesn’t appear likely to pass anytime soon, meaning that the penalty is already in force. We just don’t feel it yet.
Those who opt out, or carry a policy that doesn’t meet Obamacare’s minimum criteria of providing maternity care to men or Viagra to women, should increase their withholding amounts immediately or risk a surprise tax bill next year. How much will the penalty be? Here is an ACA Penalty Calculator that will estimate the amount due next year. For example, if you are filing as single with no dependents and make $75,000 this year, you will pay an additional $649 in 2014 rising to $1,339 next year and $1,725 the year after that (assuming 3% wage growth). Assuming the worker didn’t want to be stuck with that bill and was paid 26 times a year, she’d have to boost her withholding amount by another $25 a check this year, another $26.50 the next, and another $15 in FY2016. Things get complicated real quick with other permutations. Nothing the IRS does is simple, and handling Obamacare penalties is no different.
Most people don’t think about taxes until a few weeks before they are due, so I don’t expect this issue to get much airplay until early next year. But if you don’t have employer-sponsored health care or your plan isn’t qualified, then don’t kid yourself. You’re paying the penalty now.