FTC’s Non-Compete Ban: Dueling Court Rulings

Keeping up with the Federal Trade Commission’s (FTC) rule banning most non-compete agreements is nearly a full-time job. We initially wrote about it here, then published an update here, and now we have even more information to share. 

Overview of Original Non-Compete Ban Ruling (April 23, 2024)

On April 23, 2024, the FTC announced a final rule that prohibits employers from entering into non-compete agreements with workers, including senior executives, after the rule’s effective date of September 4, 2024. The rule also renders existing non-competes unenforceable for most workers, with exceptions for senior executives and agreements made as part of a bona fide sale of a business. The FTC’s decision was driven by findings that non-compete clauses suppress wages, stifle innovation, and hinder new business creation. The FTC estimates that the ban will lead to a 2.7% annual increase in new business formation, higher worker earnings by an average of $524 per year, and significant reductions in healthcare costs.

Ruling 1: Northern District of Texas Ruling (July 3, 2024)

U.S. District Court Judge Ada Brown in the Northern District of Texas granted a preliminary injunction against the FTC’s non-compete ban, preventing the FTC from enforcing the rule against the plaintiffs (Ryan LLC and several trade associations, including the U.S. Chamber of Commerce.) The court found that the plaintiffs were likely to succeed in arguing that the FTC lacks statutory authority to issue the rule and that the rule is arbitrary and capricious. However, this injunction is limited to the named plaintiffs and is not a nationwide injunction. 

Ruling 2: Eastern District of Pennsylvania Ruling (July 23, 2024)

In contrast to the Texas ruling, Judge Kelley Brisbon Hodge of the U.S. District Court for the Eastern District of Pennsylvania upheld the FTC’s authority to issue the non-compete ban. In this case, the court found that the FTC does have the authority to issue such a rule and ruled against the plaintiff, ATS Tree Services LLC. 

What is Next?

These conflicting rulings create uncertainty about the future of the FTC’s non-compete ban. The Texas court has indicated it will issue a final order on the merits by August 30, 2024, just days before the FTC’s rule is scheduled to go into effect on September 4, 2024.  Regardless of what the Texas court does at the end of the month, it is likely that these cases will continue through the appeals process, eventually leading to a resolution at a higher court level.

For dental practices, this situation creates uncertainty. We will continue to monitor these developments closely and provide updates on any further movement or rulings.

Legislation to Expand Tax Breaks Voted Down by U.S. Senate

A significant piece of tax legislation was rejected by the US Senate last week even though it passed overwhelmingly by the US House in January 2024. This decision can impact both families and businesses, so we wanted to break down what it means for each. 

What Was in the Bill?

  • Child Tax Credit Expansion: The bill sought to increase the amount of the child tax credit and potentially expand eligibility to families that did not qualify before. 
  • Business Tax Breaks: The bill proposed to restore tax deductions and credits, including for equipment, interest costs, and research and development activities. These were not new breaks, but ones that had lapsed. 

Impact on Dental Practices and Families

  • For Families: The proposed child tax credit expansion will not go into effect. Those that currently qualify can still take advantage of the credit, but it will not be expanded to cover more families. 
  • For Dental Practices: For those that anticipated more easily writing off 100% of the cost of new equipment in the first year, that is now off the table. You will need to continue operating under the existing tax framework. 

Optimize Your Tax Situation

While this may not have been the outcome some had hoped for, there are still plenty of ways to take advantage of existing laws. There are myriad other tax credits and deductions for which both families and businesses may still qualify. We encourage all of our clients to take advantage of early tax planning so we can determine which ones will help lower your overall tax liabilities and optimize your tax strategy for this year and the future as well. 

Proactive tax planning is one of the keys to financial success, regardless of legislative changes. Reach out to us with questions or to schedule a consultation. 

HSA Limits Increased for 2025

In our effort to keep dental practices in Texas apprised of pertinent tax information, we wanted to let you know that the IRS recently announced the 2025 inflation adjustments for health savings accounts (HSAs) and health reimbursement arrangements (HRAs), reflecting the ongoing economic conditions. The adjustments show an increase in allowable contributions and cost thresholds for high-deductible health plans (HDHPs), which could impact financial planning for those utilizing these accounts and the available funds of your patients.

For individuals with self-only HDHP coverage, the maximum HSA contribution limit will rise to $4,300, up from $4,150. Those with family HDHP coverage will see their limit increase to $8,550 from $8,300. Additionally, the minimum deductible for an HDHP will increase slightly, as will the maximum out-of-pocket expenses allowed under the plan.

Additionally, the limit for excepted benefit HRAs will increase to $2,150, up from $2,100. These savings opportunities can play an important role in tax and overall financial planning. We encourage you to consider adjusting your contributions to take full advantage of the tax benefits provided by higher limits and prepare for increased health care costs associated with higher deductible and out-of-pocket limits.

Keeping up with these changes is crucial for optimizing healthcare spending and savings strategies next year. For more detailed information and assistance with financial planning and tax strategies, feel free to reach out to our team.

CANDIDATES’ TAX PLANS, WHAT YOU SHOULD KNOW

With elections around the corner, paying attention to the candidates’ tax plans is crucial. Clinton wants upper-income Americans to pay more, while Trump seeks across-the-board tax cuts.   Per The Kiplinger Tax Letter, some highlights of both candidates’ plans are:

CLINTON

    1. Raise in capital gains rates for individuals in the 39.6% bracket who sell assets they have owned for six years or less. Taking into account the 3.8% surtax on net investment income, these folks would pay tax at a 43.4% rate on gains from assets held two years or less. The rate would drop incrementally to 23.8% (the rate currently) for assets held more than six years.
    2. Surcharge on taxpayers with AGIs over $5 million.
    3. Payroll tax hikes by increasing the wage ceiling on the 6.2% Social Security tax.
    4. Cap of 28% on the value of itemized deductions (except charitable contributions).
    5. 30% minimum tax on millionaires.
    6. Restrictions on those taxpayers with large balances in their retirement plans or IRAs.
    7. Doubling of the child tax credit to $2,000 for each child up to age four.
    8. New caregiver credit of up to $1,200 to provide relief to people who help care for elderly parents or grandparents.

TRUMP

    1. Reduce individual tax rates into three tax brackets: 12%, 25%, and 33%. For married couples, the 12% rate runs to $75,000, the 25% one tops out at $225,000 and the 33% rate kicks in after that. These thresholds are cut in half for single filers.
    2. 15% business rate.
    3. Standard deductions would go up to $30,000 for joint filers and $15,000 for singles.
    4. No more personal exemptions or head-of-household filing status.
    5. Capital gains tax would stay as is.
    6. Elimination of the 0.9% and 3.8% Affordable Care Act surtaxes.
    7. Elimination of alternate minimum tax, as well as estate and gift tax.
    8. Expansion of dependent care breaks for working and stay-at-home parents and creation of tax-favored savings accounts for child development and elder care expenses.
    9. Itemization would be capped at $200,000 for couples and $100,000 for singles.

The most noticeable disagreement between the two candidates is over the Affordable Care Act (aka Obamacare):

CLINTON

  1. Increase premium tax credits.
  2. Refundable tax credit up to $2,500 to insured individuals, $5,000 for families for individuals whose out-of-pockets expenses exceed 5% of income.

TRUMP

  1. Ditch the plan completely.
  2. Give individuals an above-the-line deduction for premiums that they pay and not subjecting the write-offs to an adjusted-gross-income threshold.
  3. Rely more on HSAs to help individuals pay for coverage

Change is on the Way

President Obama and Congress are now well on their way to making the first in what will certainly turn out to be a long list of changes to try and turn the economy around. Even as the President signs his $900 Billion Economic Stimulus Act, Congress is busy putting together changes to the tax code that will affect us all, some more than others. It now looks like the 50% Bonus depreciation will return for 2009 and we now expect the limits on deductions for new equipment purchases under IRS Code Section 179 to be increased back to $250,000, also for 2009. These changes should be signed into law by mid-February and will likely be retroactive to the beginning of the year. There are several additional changes that will affect those with adjusted gross incomes of less than $100,000. Those are too numerous to go into here, but contact us if you have any questions about those. We will keep you informed of the major changes as they become a part of the President’s stimulus plan.