What California ACA 11 Means For Your Business Taxes

California has been exploring the possibility of transitioning from its current insurance-based healthcare system, Medi-Cal, to a single-payer universal healthcare system. While this idea has been under discussion since 2017, it has yet to gain the necessary cross-party support to become a reality. However, if implemented, it would be a groundbreaking change for the state and the nation.

The latest proposal for a single-payer healthcare system is known as “CalCare,” which would be funded by Assembly Constitutional Amendment 11 (ACA 11), introduced by Democratic Assembly Member Ash Kalra.

ACA 11 proposes various tax changes to finance CalCare, and it’s important for businesses to understand the potential implications. In this article, we’ll explore the key provisions of ACA 11, examine how they may impact your business, and offer insights on how to prepare for potential tax changes.

An Overview of the Tax Changes Proposed by ACA 11

To finance the projected costs of CalCare, ACA 11 aims to generate additional tax revenue for California. The proposed tax changes include new business payroll and excise taxes, as well as an additional State Personal Income Tax on top of the current business tax costs in California. Let’s take a closer look at these proposed tax adjustments:

Additional State Personal Income Tax (CalCare Tax)

ACA 11 proposes a surtax, referred to as the “CalCare Tax,” on top of the existing Personal Income Tax. This surtax would apply at a fixed rate, starting at 0.5% for individuals with taxable income exceeding $149,509, with incremental increases for higher-income individuals, up to a maximum of 2.5%.

Graduated-Rate Payroll Tax System

For employers with 50 or more employees, ACA 11 introduces a payroll tax at a rate of 1.25% of the total wages paid. Additionally, for employees earning over $49,900 per year, an extra 1% tax would apply, potentially resulting in a top tax rate of 2.25% for certain employers.

Gross Receipts Tax of 2.3% (Excluding the First $2 Million of Business Income)

ACA 11 proposes a 2.3% gross receipts tax (GRT) on businesses, excluding the first $2 million of business income. Unlike income-based taxes, the GRT applies to total business revenue, regardless of profit margins.

Potential Impacts of Higher Tax Rates

The proposed tax changes under ACA 11 could have various implications for businesses in California. It’s important for businesses to be aware of these potential impacts and plan accordingly:

Tax Burden: California is already an expensive state for families to live in. It is reasonable to expect that these tax increases, combined with the expected increase in the cost of living, may push people and their families out of California and into more affordable states. This would result in a higher tax burden for the remaining citizens. Businesses should assess the potential impact on their financial planning and operations.

Business Growth: The graduated payroll tax system may affect decisions related to business expansion and hiring. A successful developing business that hires 50 or more employees is liable to the payroll tax expense under ACA 11. Businesses looking to expand will need to do a significant planning before employing new employees, consequently slowing corporate growth.

Profit Margins: The proposed GRT could impact businesses with low profit margins or those experiencing losses, as the tax is based on total revenue rather than profits. At 2.3%, the GRT cost for start-up or low-margin businesses could exceed any profitable margins.

Preparing Your Business for Potential Tax Changes

While the future of ACA 11 and CalCare remains uncertain, it’s prudent for businesses to stay informed and prepare for potential changes in the tax landscape. Proper tax planning can help businesses navigate challenges and optimize their financial strategies. it’s important for businesses to consult with tax professionals for personalized advice and guidance.

Navigating the Future with Confidence

The discussion around healthcare reform in California, including the potential implementation of a single-payer system like CalCare, is ongoing. While ACA 11 represents one possible approach to funding such a system, it’s important to recognize that the legislative process is complex, and the outcome is not yet determined.

As a business owner, staying informed about potential tax changes and understanding their implications is essential for making sound financial decisions. Whether or not ACA 11 becomes law, California businesses can benefit from proactive tax planning and strategic financial management.

At J.R. Martin & Associates, our goal is to provide you with the knowledge and support you need to navigate the ever-changing tax environment with confidence. Our team of skilled tax professionals is dedicated to helping you achieve your business objectives while minimizing tax liabilities and maximizing deductions.

We understand that every business is unique, and we tailor our services to meet your specific needs. Whether you’re concerned about the potential impact of ACA 11 or looking for guidance on other tax matters, we’re here to help.

Ready to take control of your business’s financial future? Get in touch with J.R. Martin & Associates to explore our comprehensive tax strategies services today!