As your partner we strive to stay on top of all developments in the new health care law, with an eye toward how to best maximize results for your unique situation. We are prepared to advise you on all compliance rules and tax-reduction opportunities that undoubtedly will arise. In the meantime, if you have any questions about the new law, please do not hesitate to call our office.
Below are the income tax related highlights of the law:
Small Business Health Care Credit: Small employers with no more than 25 employees are entitled to up to a 35 percent tax credit on the cost of providing health insurance for employees, starting immediately in 2010;
Adoption Credit Increase: The adoption credit is $13,170 per child, up from $12,150 in 2009, and is now refundable.
Excise Tax on Tanning Services: A 10% tax is imposed on amounts paid for indoor tanning services on or after July 1, 2010.
W-2 Reporting of Health Insurance: Reporting will be voluntary until 2012;
HSA and Flex Plan Withdrawals for Over the Counter Reimbursements Prohibited: Dollars will be limited to prescription medications with some exceptions after 2010, along with placing a $2,500 annual cap on expenses covered under health FSAs, starting in 2013;
Penalty on Non-qualified HSA Distributions increases to 20%: Up from the 2009 penalty of 10% on HSA withdrawals before age 65 for non-qualified medical expenses.
Medicare Surcharge on Investment Income: Individuals whose adjusted gross income for the year exceeds $200,000 ($250,000 for joint filers), whether from wages or otherwise, will also be paying an additional 3.8 percent Medicare tax on net investment income, starting in 2013;
Medicare Surcharge on High Income Taxpayers: Individuals who earn more than $200,000 for the year ($250,000 for married couples) will be paying an additional 0.9 percent in Medicare tax, starting in 2013
Increase in Medical Itemized Deduction Base: Limits on tax-subsidized medical expenses will be imposed by raising the itemized medical expense deduction floor for regular tax purposes from 7.5 percent to 10 percent, generally starting in 2013.
UPDATE FROM THE DEPARTMENT OF LABOR (5/8/13) - Provide Notice of Health Insurance Coverage Options to Employees by October 1, 2013: All employers must provide their employees with a notice of health insurance coverage options available through the online insurance marketplace (also referred to as an exchange) by October 1, 2013. After this date, all newly hired employees must be given the notice within 14 days of employment. The Department of Labor has provided model notices on their website that can be distributed to employees:
UPDATE! AS OF 7/2/13 THIS PENALTY HAS BEEN POSTPONED UNTIL 2015 - Penalty on Employers Not Providing Health Insurance:Employers with 50 or more employees generally will be required to provide a minimum level of health insurance for their employees or pay a penalty per employee, starting in 2014;
Penalty Tax on Unisured: Most individuals will be required to obtain health insurance or be subject to a penalty tax starting in 2014;
Health Insurance Credits for Low Income Taxpayers: Tax credits to subsidize the cost of health insurance premiums will be available to individuals earning up to 400 percent of the poverty level, starting in 2014.
Penalty on Employers Not Providing Health Insurance: Employers with 50 or more employees generally will be required to provide a minimum level of health insurance for their employees or pay a penalty per employee, starting in 2015.
We highly recommend that business clients immediately speak with us regarding establishing Health Reimbursement Arrangements to counter some of these changes.
Tax incentives. Among a handful of tax incentives provided under the new health-care reform package, two are particularly notable at this time: (1) the ability of parents to cover adult children up to age 27 under their tax-qualified employer-provided health plans, starting immediately for plans that elect to beat the mandatory post-September 22 year deadline for doing so; and (2) the unveiling of a simplified cafeteria plan specifically tailored to small businesses, starting in 2011.
Exchanges. The health care reform package requires each state to establish an exchange by 2014 to help individuals and qualified employers obtain coverage. Coverage will be offered at various levels. Qualified individuals may be eligible for premium assistance tax credits, cost-sharing or vouchers to help pay for coverage through an insurance exchange. An individual's income, whether or not coverage is provided by his or her employer, will all be taken into account when determining if the individual qualifies for a premium assistance tax credit, cost-sharing or voucher.
IRS guidance. Over the course of the next few months, the IRS and other federal agencies will be filling in details on how to comply with all the provisions under the massive health care reform package. The IRS is expected to issue guidance soon on the provisions with effective dates in 2010 and 2011.
Our office will be staying on top of all developments, with an eye toward how to best maximize results under the new law for our clients. We are prepared to advise our clients on all compliance rules and tax-reduction opportunities that undoubtedly will arise. In the meantime, if you have any questions about the new law, please do not hesitate to call our office.