I’m wondering if small companies have been put at a disadvantage by Obamacare. It used to be the case that a small company could compensate employees with tax-free cash by paying their individual health insurance premiums, just as a big company can compensate employees with tax-free cash by paying their group health insurance premiums. “Large Penalties Await Employers Who Reimbursed Certain Employee Health Insurance Premiums In 2014” (Forbes) suggests that companies that continue to do what they had been doing for decades are now subject to a $36,500/employee annual penalty.
What do readers know about this? This would seem to put small companies at a significant competitive disadvantage to big companies unless there is some straightforward way for a typical small-company W-2 employee to deduct health insurance premiums paid (the 1040 form has a line for “self-employed health insurance deduction” but it seems to be for 1099 workers or S-corporation owners).
Is this another example of the “go big or go home” U.S. economy? Or is there some straightforward way for a small company to get back to parity in terms of the tax treatment of its employee compensation?
[Separately, let’s put the $36,500 into context. The median pre-tax household income in the U.S. is about $52,000 (Wikipedia). So the penalty is a little smaller than the after-tax median household income. But the median net compensation for an individual worker, according to the Social Security Administration, is about $28,850. So the penalty is actually more than what a company would typically pay a worker. Someone who had a one-night sexual encounter in New York State with a partner earning $214,706 per year and obtained custody of the resulting child would collect the same $36,500 in annual tax-free child support. A typical welfare family costs the taxpayers a lot more than $36,500 per year but as of 2013, the total value to the recipient of a welfare package was more than $36,500 in only 11 states (CATO Institute study).]