As President Donald Trump’s administration begins its work, rumors that most or all of the Affordable Care Act (ACA) could be repealed are plentiful. Over the next few months, the future of the law should be known. However, the ACA remains in place for 2017 and employers should move forward accordingly.
Currently in effect under the ACA, business owners with 50 or more employees who are either full-time (FT) or full-time equivalent (FTE) are required to offer health insurance coverage to their FT employees. FTEs are determined by dividing the total hours of all part-time employees worked in one month by 120. Seasonal employees are not included in this calculation.
While the test to determine coverage requirements is based upon calculating the number of both FT and FTE employees, employers are only required to provide health insurance to those employees who work 30 or more hours per week. In order to maintain compliance, health insurance coverage must pass these two tests.
Employers with 50 or more FT and FTE employees, who wait for the new administration’s plans for health insurance, may be underestimating the impact of potential penalties for not offering health insurance to all eligible employees. Employers who fail to offer appropriate coverage could face a penalty of $2,000 per year for each full-time employee, reduced by 30 if one or more FTs receive assistance from a Health Insurance Marketplace offered by the federal or state government.
The ACA is still law despite its uncertain future. Compliance is especially critical for employers in the restaurant, hotel, and manufacturing industries where large workforces are common. Business owners should continually evaluate their FTE employees and the cost to provide health insurance coverage to those eligible against the potential noncompliance penalties.
Look for future posts on how changes to the ACA will affect businesses. For individual questions or more information on how the ACA influences a restaurant, hotel, or companies that serve the hospitality industry, contact Aaron M. Boker at 240.364.2582 or firstname.lastname@example.org.
As business owners will have their 2016 corporate tax returns prepared in the upcoming months, there are several tools that could be used to help reduce corporate or personal tax liabilities. Here are some strategies that could save you money.
Implement and fund a retirement or profit sharing plan
Business owners can claim a tax deduction for contributions to fund retirement and profit sharing plans on behalf of employees or owners for calendar year 2016. Most plans don’t have to be funded until the tax filing deadline to claim the deduction.
Purchase and place fixed assets into service
Assuming the business is generating a profit, up to $500,000 of fixed assets such as computers, equipment, furniture, and fixtures that were purchased and placed into service before the end of the year can be fully depreciated per Internal Revenue Code Section 179. There is also a 50% bonus depreciation incentive available for new fixed asset purchases placed into service. The 50% bonus depreciation has no asset threshold and also includes leasehold improvements, which is any improvement that is:
Pay out accrued bonuses or wages before March 15
Business owners that use the accrual basis of accounting can deduct wages or bonuses that are accrued at year-end as long as they are paid out before March 15. This is an effective tax strategy that can defer the cash burden of paying year-end bonuses by up to 2.5 months, but also pay out additional compensation that rewards performance and can assist in employee retention.
Effective December 1, 2016, business owners must provide overtime pay to salaried employees who earn less than $913 per week or $47,476 per year. This is a substantial increase to the Department of Labor’s Fair Labor Standard Act (FLSA)’s previous salary level of $455 per week or $23,660 annually.
While the FLSA ensures minimum wage and overtime protections for most employees, the employers are exempt from paying overtime to employees who meet all of the following three criteria:
For the first time under the FLSA, employers can use nondiscretionary bonuses and incentive payments such as commissions to satisfy up to 10 percent of the salary level. In order for these payments to qualify, any nondiscretionary or incentive payments must be paid quarterly or on a more frequent basis.
Restaurant and hotel owners generally pay a vast majority of their workforce an hourly wage and therefore would pay their hourly employees overtime regardless. The new rules could result in now paying overtime to restaurant managers and assistant managers, as well as department managers or assistant department managers in a hotel.
Going forward, restaurant and hotel owners will now need to maintain overtime data for their salaried employees as any potential overtime pay would be calculated on a weekly basis.
Aronson LLC is available for consultation on tax and business management topics for restaurants. Please contact Aaron M. Boker, CPA at 240-364-2582 or email@example.com for more information.
2015 Tax Savings Strategies for Restaurants and Hotels
With 2015 complete, many restaurant and hotel owners should start thinking about preparing their upcoming tax returns. As a restaurant or hotel owner, there are multiple items to consider in order to reduce tax liabilities.
Depreciation on Fixed Asset or Leasehold Improvement Additions
Restaurant and hotel owners can claim substantial tax deductions on fixed assets that were placed into service in 2015. Under Internal Revenue Code Section 179, a 100% deduction can be claimed for up to $500,000 of equipment, point of sale systems, furniture, and fixtures that were placed in service last year. However, a depreciation stemming from Section 179, cannot be used to create a business loss for the restaurant or hotel.
An alternative to Section 179 depreciation is to claim a 50% bonus depreciation deduction on brand new fixed assets that were placed in service. A 50% bonus depreciation enables business owners to deduct 50% of the fixed asset’s cost; regardless, of whether the restaurant or hotel is profitable.
If a restaurant or hotel owner is leasing their space from a property owner, up to $250,000 of Section 179 depreciation or an unlimited amount of 50% bonus deprecation can be claimed on “qualified leasehold improvements” that are placed into service. A “qualified leasehold improvement” is any improvement that is:
• Made to an interior portion of the building
• Made to nonresident property
• Pursuant to a lease
• Made to a building that’s been in service more than three years
FICA Tip Credit
Restaurant owners can claim a tax credit if gratuities earned by their tipped employees are reported on their W-2 forms, and the employer withholds and pays their share of the Social Security and Medicare taxes. Social Security is equal to 6.2% of an employee’s compensation while Medicare is equal to 1.45%. The tax credit the restaurant owner would obtain is equal to the employer’s portion of the Social Security and Medicare taxes.
If tipped employees are paid less than the minimum wage, which is deemed $5.15 per hour for the “FICA Tip Credit,” any employer taxes paid on the portion of the tips that assists in getting an employee to the $5.15 minimum wage are ineligible for the tax credit.
It’s not uncommon for restaurants and hotels to pay their managers a year-end bonus contingent on the business’s performance. Restaurant and hotel owners that use the accrual basis of accounting can take a tax deduction by accruing 2015 performance-based bonuses to their managers. Any accrued bonuses must be paid before March 15, 2016, in order to claim the tax deduction.
Accrued Vacation or Sick Leave
Restaurant and hotel owners that use the accrual basis of accounting can take a tax deduction for any unused vacation or sick leave that is either used or paid out to employees before March 15, 2016.
Aronson LLC is available for consultation on tax and business management topics for restaurants. Please contact Aaron M. Boker, CPA at 240.364.2582 or firstname.lastname@example.org for more information.