New Health Care Taxes Leave Small Business Owners No Choice

What seems like a very long time ago there was a day when you started a business in your spare bedroom, garage, or basement and your financial success or failure was of your own making. You had an idea, wanted to be your own boss, were determined to work as hard as need be to achieve whatever goal you had in mind.

You did everything: found customers to sell to, found vendors to purchase from, made the deliveries, paid the bills, provided customer service, decided on the marketing, created the advertising, sent out the invoices, called the customers who were late in paying, purchased the insurance you needed, and everyday asked yourself did I do the right thing? Am I going to make it? Will there be enough money to pay the rent, the telephone, the other necessary business expenses, and still have enough money left to pay the mortgage, feed the family, buy the children shoes, and maybe even take mom or dad out to dinner?

Then came the day that there were simply not enough hours in the day to do everything that your small business required. You needed help. You needed to hire someone. Now you had a new business expense. Did you have enough money for that too? You took on a new responsibility, a new mouth to feed, someone else’s family was now depending on your small business to provide what they needed.

And then, it started. In 1937 the government added one more expense you had to add to the list of expenses your small business had to pay. Congress passed the Federal Insurance Contributions Act (FICA). You had to pay a tax of 1% of the salary you paid yourself personally, your small business had to pay an additional 1% tax of what you paid yourself, and your small business had to pay another 1% tax of what you paid your newly hired worker.

By 1954 the three 1% taxes listed above had doubled to 2% each, by 1966 they had doubled again to 4% each.

In 1966 Congress passed a new tax on your small business, a Medicare tax. You had to pay a tax of .35% of the salary you paid yourself personally, your small business had to pay an additional .35% tax of what you paid yourself, and your small business had to pay another .35% tax of what you paid your newly hired worker.

In 1967 your small business had a combined FICA tax and Medicare tax of 4.4% of what you paid your self personally, another 4.4% that your small business had to pay to match what you paid yourself personally, and 4.4% of what you paid your employee.

But of course 4.4% was not nearly enough. The government had big plans, and big plans cost big money, and the government did not make any money, but your small business did. Because you and your employee did everything: found customers to sell to, found vendors to purchase from, made the deliveries, paid the bills, provided customer service, decided on the marketing, created the advertising, sent out the invoices, called the customers who were late in paying, purchased the insurance you needed, and everyday asked yourself did I do the right thing? Am I going to make it? Will there be enough money to pay the rent, the telephone, your employee’s salary, the other necessary business expenses, and still have enough money left to pay the mortgage, feed the family, buy the children shoes, and maybe even take mom or dad out to dinner?

By 1990 the government needed so much money that those taxes on you small business had almost doubled again! Now your small business had a combined FICA tax and Medicare tax of 7.65% of what you paid your self personally, another 7.65% that your small business had to pay to match what you paid yourself personally, and 7.65% of what you paid your employee.

But of course 7.65% was not nearly enough. The government had big plans, and big plans cost big money, and the government did not make any money, but your small business did. Because you and your employee did everything: found customers to sell to, found vendors to purchase from, made the deliveries, paid the bills, provided customer service, decided on the marketing, created the advertising, sent out the invoices, called the customers who were late in paying, purchased the insurance you needed, and everyday asked yourself did I do the right thing? Am I going to make it? Will there be enough money to pay the rent, the telephone, your employee’s salary, the other necessary business expenses, and still have enough money left to pay the mortgage, feed the family, buy the children shoes, and maybe even take mom or dad out to dinner?

On March 21, 2010 Congress passed a new tax. Your small business had to purchase health insurance for your family and purchase health insurance for your employee. If your small business chose not to purchase health insurance your small business would have to pay a tax of 8% of what you paid yourself and 8% of what you paid your employee.

Now in addition to asking yourself will there be enough money to pay the rent, the telephone, your employee’s salary, the taxes of 7.65% + 7.65% + 7.65% + 8.0% + 8.0%, the other necessary business expenses, and still have enough money left to pay the mortgage, feed the family, buy the children shoes, and maybe even take mom or dad out to dinner?

Your answer was NO! You had no choice but to tell your employee that you could not afford to keep he, or she on the payroll. You had to let them go.