Executive summary
The Affordable Care Act (ACA) addresses the challenges facing the health industry. The government has been implementing the provisions in incremental stages since 2010 and more changes are still underway. This report discusses the impact that this act has on indoor tanning services by analyzing the indoor tanning services tax, health insurance coverage duty on employers and the additional Medicare tax. Firstly, the indoor services tax applies to businesses offering tanning services as their predominant activity. However, the law provides tax exemptions to providers such as phototherapy services, qualified physical fitness facilities, spray-on tanning services and those selling tanning creams and lotions. Secondly, the health insurance coverage duty provides guidelines for employers in securing health insurance coverage for their employees. The type of coverage and degree of this obligation depends on whether the business entity is a small employer or a large employer. Thirdly, the additional Medicare tax prescribes higher taxation for high-income earners whose total wages exceed a specified limit. This limit depends on whether the tax return is filed separately or jointly.
Introduction
Indoor tanning services have become famous over the years, especially among the female population. People’s leisure time has been deeply constrained by stringent work schedules. They hardly find the time to obtain a natural tanned look along the beaches like in the past, necessitating the use of indoor tanning services. These services use ultraviolet radiation to induce skin tanning. Health concerns over increased susceptibility to skin cancer among those who use indoor tanning services made the government impose a tax on indoor tanning in 2010. The tax falls under the Affordable Care Act (ACA). In addition to levying a tax on tanning, the ACA affects other areas of indoor tanning services such as health insurance coverage duty on employers and additional Medicare taxes.
The indoor tanning services tax
The ACA stipulates a 10% excise tax on indoor tanning services. The law obligates indoor tanning service providers to make quarterly excise tax remissions. The providers consolidate the tax income for consecutive months then make remissions on the last day of the fourth month. For instance, they remit the consolidated tax for January, February, and March on April 30th. The next remission for the months of April, May and June is on July 31st. The sequence continues till the day the business winds up its operations. On remission, a provider fills in a Quarterly Federal Excise Tax Return (IRS Form 720). Remissions only occur on business days. The act obligates providers to collect the tax at the time when customers pay for the service.
However, the tax law exempts certain providers including spray-on tanning services, topical creams, and lotions, qualified physical fitness offering tanning services, and phototherapy services (IRS sec. 5, c). The law exempts spray-on tanning services, and creams and lotions because they provide skin tanning without using ultraviolet radiation. For a business to qualify as a physical fitness facility, it must provide exercise and physical fitness programs as its core business. Tanning services must, therefore, take an incidental portion of the facility’s daily activities. Furthermore, the facility must not attach a price to its tanning services. Physical fitness facilities that do not meet these criteria in offering tanning services are subject to the excise tax which is normally part of the membership fee. Phototherapy services involving the provision of tanning services by licensed medical practitioners within their premises are exempt from taxation. Medical conditions that may necessitate tanning services include wound healing, neonatal jaundice and treatment of skin disorders (IRS par.3, b).
Health insurance coverage duty on employers
The ACA prescribes health insurance coverage duty on employers according to their size. Small employers are those who employ less than fifty full-time employees. Large employers are those that employ fifty and above full-time employees. Large employers also include those with less than fifty full-time employees but are part of the ownership group or business chain whose total number of employees exceeds fifty (IRS par. 2. a). According to the law, full-time employees work for a minimum of thirty hours each week.
Small businesses are not mandated to provide health coverage to their employees. However, those that insure their employees can apply for tax credits as high as 50% through the Small Business Health Options Program (SHOP). For a small business to obtain tax credits, it must employ less than 25 employees and generate annual revenues that do not exceed $50. 000. Currently, the legal requirement to file annual returns and provide self-insured coverage to employees is optional but will become mandatory in January 2015. Annual returns indicate whether the business offers coverage to its workers, and the type of coverage offered if applicable.
The ACA prescribes an Employer Shared Responsibility provision that obligates large employers to either provide affordable health covers for full-time workers or pay a specified fee for each employee who receives a tax credit on individual covers. Large employers with more than 50 but less than 100 workers are yet to provide quality health insurance policies. The act gives them up to 2016 to initiate coverage or else pay the employer responsibility pay. Statistics indicates that large employers with 100 or more workers provide comprehensive health insurance policies to about 70% of their workers.
Currently, the client’s company employs only two workers, making it a small employer. According to the ACA, the company is not obligated to provide health coverage to the workers. However, the company can benefit up to 50% tax credits by offering affordable coverage to the employees, provided that its revenue is less than $25, 000. At the same time, the company must secure self-insured covers for the employees by the start of 2015 as stipulated by the act. In addition, it must make the necessary structural arrangement to accommodate the filing of annual return forms in 2015. For instance, the owner can employ an accountant to deal with finances and the filing of returns.
Additional Medicare Taxes
The ACA stipulates an additional Medicare tax of 0.9% on self-employment income, wages and railroad retirement compensation upon exceeding a specified limit. The limit for single individuals is $200, 000 while that of families or joint filers is $250, 000 (ObamaCare Facts par.2). The act obligates an employer to withhold the tax from the total wages of employees if the wage exceeds the limits. The total salary includes both monetary and non-monetary compensation. For example, if a company gives housing facilities to its employees, then the cost of the house or rental payments are added to the basic pay to obtain the total wage.
The client’s tanning accompany will have to implement the additional Medicare taxes if any of the two workers receive total wages exceeding the limit. Thus, the owner will withhold the tax and file it with the government at the end of every month.
Conclusion
The Affordable Care Act has impacted the indoor tanning services in several ways such as taxation and piling additional duties on employers. The taxes on tanning services are critical in curbing skin cancer trends. The employer sharing responsibility provisions are essential in providing better health coverage to employees. Consequently, a satisfied and healthy employees will more be motivated to produce excellent output for the company. The additional Medicare tax mainly affects high-income earners and may lead to an employee demotivation. The company can counteract this adverse effect by offering more benefits to the affected employees.
Work cited
Internal Revenue Services (IRA). “Affordable Care Act Tax Provisions for Small Employers.” 29 Aug. 2014a. Web. 21 Nov. 2014. < http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-for-Small-Employers>.
Internal Revenue Services (IRA). “Excise Tax on Indoor Tanning Services Frequently Asked Questions.” 16 Oct. 2014b. Web. 21 Nov. 2014. < http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Excise-Tax-on-Indoor-Tanning-Services-Frequently-Asked-Questions>.
Internal Revenue Services (IRA). “Indoor Tanning Services Tax Center.” 24 Oct. 2014c. Web. 21 Nov. 2014. < http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Indoor-Tanning-Services-Tax-Center>.
ObamaCare Facts. “ObamaCare Tax: Full List of ObamaCare Taxes.” n.d. Web. 21 Nov. 2014. < http://obamacarefacts.com/obamacare-taxes/>.
