I am not endorsing the following, but a reader sent it and I thought I should at least pass it along to all of you (he gave me permission to reprint):
Here’s a thought for you or an Austrian colleague I’ve never seen printed that you may consider. “ACA will cause more startup companies and independent contractors”. For 15 years I’ve flipflopped between being an employee and an IC with an LLC and S Corp tax election. My wife is a homemaker and I am fat, meaning that prior to ACA I either needed to have employer-paid healthcare or cobra, otherwise I would have no insurance. No insurance company would give me coverage at any cost. So basically I could only milk the independent consulting cow for 18 mos at a time before going back to FTE.
As of November I went to permanent IC because I now had ACA to provide me with cheap healthcare forever.
And the rest of the taxpayers are footing the bill. Let me explain. My ACA policy is less than half the price of cobra and the policy is better. Ah, but it gets better due to tax laws and S Corp arrangements. VERY quick summary…as an employee your employer-paid healthcare premiums are added to your wages but are free of FICA. Pretty basic math. As an S Corp “employee” the same applies, but an S Corp employee must only have a salary that is about 1/2 of total consulting net income from the S Corp…and healthcare premiums apply to the “reasonable salary” test. So, without divulging what I make, as a contractor my salary, when including premiums is less than one THIRD of what it would be if I were an employee making a comparable salary. For ACA, the difference in premiums for someone making say 70K vs 100K in wages is staggering. Who’s subsidizing that? The taxpayer is subsidizing the “wealthy” since it is the wealthy that are the IC’s and not the poor who tend to b e employees.
In my case my hourly rate is about 1/2000th of what my salary was. My employer and I worked this out (50 weeksx40 hours). Yet they no longer have to pay 401K match, various premiums, employer FICA and unemployment, and various incidentals. And yet I’ll still “take home” more money. When I ran the numbers for my employer we came to this agreement. They were so thrilled they did bump my hourly rate as a courtesy.
Ah, but it gets better. If instead of getting “individual” ACA I had my S Corp get SHOP healthcare via healthcare.gov I would’ve gotten an additional 25% discount since I am a small business. The only reason I didn’t do it is because, well, I only realized that was an option after I already signed up for individual. And I swear there was a healthcare.gov “glitch” (I of course never heard of any other bugs with that site) where I could not cancel one and apply for the other.
Ah, but it gets better. There is debate right now as to whether this is still valid/legal under ACA, but I know LOTS of people doing it regardless, until informed by the IRS to cease. And that is your S Corp creates an HRA for you. With an unlimited HRA (costs about $170/yr to setup/administer) your business can fully deduct any and all medical-related out-of-pocket expenses with no cap. Anything from band-aids to out-of-pocket ACA deductibles. How many employees have this option at their company? This makes ANY healthcare expense a top line expense vs a bottom line deduction subject to 1040 itemization rules.
My points in all this…a)ACA will clearly benefit the “wealthy”/smart that can manipulate the system to their benefit. It’s insane that I can do this. b)more people like me (experienced, advance IT architect) will opt for independent consulting vs FTE. I was not the only person who moved to IC in November. Lots of people where I work did too. And companies often prefer ICs over FTEs because it makes their labor force more elastic. This could eventually lead to so many people converting to ICs that the entire withholding tax system comes tumbling down.
In case you aren’t familiar with the effective tax savings of an IC with an S Corp arrangement…my effective tax rate will likely be LOWER this year than Mitt Romney’s when he got into all kinds of trouble for his “carried interest” arrangements a few years back. And I don’t even use my show horse as a business expense.
I have NEVER seen a non-Austrian state that ACA was really a way for the crony capitalists to further bilk the system. I beg to differ with those who state the wealthy are subsidizing the poor. It’s more like the middle class is subsidizing everyone else.