Sequestration in a Nutshell
March 1 has come and gone, and as far as anyone can tell the world is still standing, the federal government is still functioning, and the economy is stronger than ever.
Talk of an impending “sequestration” dominated the national airwaves in February, but now the deadline for avoiding sequestration has passed, tax season is in full swing, and business owners across the country are looking over their shoulders and wondering if they might have missed a piece of essential news.
Has the so-called “sequester” taken a bite out of small business? Has it affected the tax status of small businesses? Who’s really paying the price for sequestration?
While many of the so-called “austerity cuts” were essentially hot air—hyperbole peddled by politicians looking to advance one agenda or another—the real cost of sequestration is already beginning to chip away at the bottom lines of small-business owners.
The IRS recently announced that due to sequestration, the refundable portion of the Small Business Health Care Tax Credit was going to be reduced by a whopping 8.7% effective immediately. The reduced rate will be in place throughout the fiscal year, unless Congress manages to intervene.
The Small Business Health Care Tax Credit was created to encourage small-business owners to provide coverage to their employees by reducing the expense of costly health care premiums and fees. Now, thanks to sequestration, the credit will be trimmed back indefinitely.
Practically, that means health care benefits just got a little more expensive for thousands of business owners struggling to turn a profit. And considering that health care costs are rising at an average rate of 8% per year, an 8.7% reduction in the credit will create substantial financial difficulties for may business owners.
So Now What?
The federal government cannot continue to operate effectively under a cloud of crisis. But in lieu of a comprehensive package of meaningful budgetary reforms, Congress continues to pass short-term deals to delay further cuts.
Luckily, the economic growth of the past 5 years continues more or less unabated… for now. Small-business owners who are concerned that the effects of sequestration will have a significant impact on their bottom line should take care to spend wisely, pay down debt, and monitor their business credit with tools and services from Dun & Bradstreet