Analysis of the Tax and Benefits
Provisions of the 2010 Health Care Act as Amended by the 2010
Health Care Reconciliation Act
GKE has been following the President's Health Care Act and have
forwarded you an email a couple of weeks ago to outline the Act
for your review. The following sections contain the Tax and Benefits
Provisions of H.R. 3590, the Patient Protection and Affordable
Care Act, as signed into law by the President on Mar. 23, 2010
( PL 111-148, 3/23/2010 ), as Amended by H.R.
4872, the Health Care and Education Reconciliation Act of 2010,
as signed into law by the President on Mar. 30, 2010.
H.R. 3590, the Patient Protection and
Affordable Care Act, is generally referred to in the Analysis
as the "2010 Health Care Act," while H.R. 4872, the
Health Care and Education Reconciliation Act of 2010, which
amends the 2010 Health Care Act, is generally referred to in the
Analysis as the "2010 Reconciliation Act".
Major changes in the new health reform
legislation are included below, please click on each link
for more information:
Penalty
for remaining uninsured.
For tax years beginning after Dec. 31, 2013, non-exempt U.S. citizens
and legal residents will have to maintain minimum essential coverage
or pay a penalty.
Low-income tax credits for participating in health exchanges.
For tax years ending after 2013, tax credits will be available
for individuals and families with incomes up to 400% of the federal
poverty level ($43,320 for an individual or $88,200 for a family
of four) that are not eligible for Medicaid, employer sponsored
insurance, or other acceptable coverage.
Employer responsibilities.
For months beginning after Dec. 31, 2013, an "applicable
large employer" (generally, one that employed an average
of at least 50 full-time employees during the preceding calendar
year) not offering coverage for all its full-time employees, offering
minimum essential coverage that is unaffordable, or offering minimum
essential coverage that consists of a plan under which the plan's
share of the total allowed cost of benefits is less than 60%,
will have to pay a penalty if any full-time employee is certified
to the employer as having purchased health insurance through a
state exchange with respect to which a tax credit or cost-sharing
reduction is allowed or paid to the employee.
Free choice vouchers.
After Dec. 31, 2013, employers offering minimum essential coverage
through an eligible employer-sponsored plan and paying a portion
of that coverage will have to provide qualified employees with
a voucher whose value can be applied to purchase of a health plan
through the Insurance Exchange.
Tax credits for small employers offering health coverage.
For tax years beginning after Dec. 31, 2009, an eligible small
employer will be given a tax credit for nonelective contributions
to purchase health insurance for its employees.
Dependent coverage
in employer health plans.
Effective on the enactment date of the 2010 Reconciliation Act,
the general exclusion for reimbursements for medical care expenses
under an employer-provided accident or health plan is extended
to any child of an employee who has not attained age 27 as of
the end of the tax year.
Health-Related Revenue Raisers
Excise tax on high-cost
employer-sponsored health coverage.
For tax years beginning after Dec. 31, 2017, a 40% nondeductible
excise tax will be levied on insurance companies and plan administrators
for any health coverage plan to the extent that the annual premium
exceeds $10,200 for single coverage and $27,500 for family coverage.
Cost of employer sponsored
health coverage included on Form W-2.
For tax years beginning after Dec.
31, 2010, employers must disclose the value of the benefit provided
by them for each employee's health insurance coverage on the employee's
annual Form W-2 ( Code Sec. 6051(a)(14) , as amended by 2010 Health
Care Act Sec. 9002).
Other new employer
reporting responsibilities for health coverage.
For calendar years beginning after 2013, insurers (including employers
who self-insure) that provide minimum essential coverage to any
individual during a calendar year must report the following to
both the covered individual and to IRS,
Additional Hospital
Insurance Tax (HI) for high wage workers.
For tax years beginning after Dec. 31, 2012, the HI tax rate is
increased by 0.9 percentage points on an individual taxpayer earning
over $200,000 ($250,000 for married couples filing jointly); these
figures are not indexed.
Surtax on unearned
income.
For remuneration received, and tax years beginning after, Dec.
31, 2012, a 3.8% surtax (called the Unearned Income Medicare Contribution)
will apply to net investment income of higher income taxpayers.
New limit on health
FSA contributions.
For tax years beginning after Dec. 31, 2012, the amount of contributions
to health flexible spending accounts (FSAs) under cafeteria plans
will be limited to $2,500 per year.
Restricted definition
of medical expenses for employer provided coverage.
For purposes of employer provided health coverage (including health
reimbursement accounts (HRAs) and health flexible savings accounts
(FSAs), health savings accounts (HSAs), and Archer medical savings
accounts (MSAs)), the definition of medicine expenses deductible
as a medical expense is generally conformed to the definition
for purposes of the itemized deduction for medical expenses.
Increased tax on nonqualifying
HSA or Archer MSA distributions.
For distributions made after Dec. 31, 2010, the additional tax
for HSA withdrawals before age 65 that are used for purposes other
than qualified medical expenses is increased from 10% to 20%,
and the additional tax for Archer MSA withdrawals that are used
for purposes other than qualified medical expenses is increased
from 15% to 20%.
Modified threshold
for claiming medical expense deductions.
For tax years beginning after Dec. 31, 2012, the adjusted gross
income (AGI) threshold for claiming the itemized deduction for
medical expenses will be increased from 7.5% to 10%.
Deduction for employer
Part D is eliminated.
For tax years beginning after Dec. 31, 2012, the deduction for
the subsidy for employers who maintain prescription drug plans
for their Medicare Part D eligible retirees will be eliminated.
Industry-specific revenue
raisers.
The following revenue raising changes will be imposed on health
related industries.
Corporate information
reporting.
For payments made after Dec. 31, 2011, businesses that pay any
amount greater than $600 during the year to corporate providers
of property and services will have to file an information report
with each provider and with IRS.
Codification of economic
substance doctrine and imposition of penalties.
The economic substance doctrine is a judicial doctrine that has
been used by the courts to deny tax benefits when the transaction
generating these tax benefits lacks economic substance.
Elimination of credit
for black liquor.
A $1.01 per gallon tax credit applies for the production of biofuel
from cellulosic feedstocks in order to encourage the development
of new production capacity for biofuels that are not derived from
food source materials.
Estimated taxes for
large corporations.
The required corporate estimated tax payments factor for corporations
with assets of at least $1 billion will be increased by 15.75
percentage points for payments due in July, August, and September
of 2014.
Other Tax Changes
Simple
cafeteria plans for small businesses.
For tax years beginning after 2010, a new employee benefit cafeteria
plan known as a Simple Cafeteria Plan will be available.
Liberalized
adoption credit and adoption assistance rules.
For tax years beginning after Dec. 31, 2009, the adoption tax
credit will be increased by $1,000, and made refundable. The adoption
assistance exclusion also will be increased by $1,000. Both credit
and exclusion are extended through
2011.
New
credit for new therapies.
For expenses paid or incurred after Dec. 31, 2008, in tax years
beginning after that date, a two-year temporary credit applies,
subject to an overall cap of $1 billion, to encourage investments
in new therapies to prevent, diagnose, and treat acute and chronic
diseases.
New
exclusion for certain health professionals.
Payments made under any State loan repayment or loan forgiveness
program that is intended to provide for the increased availability
of health care services in underserved or health professional
shortage areas are excluded from gross income, effective for amounts
received by an individual in tax years beginning after Dec. 31,
2008.
Finally, The IRS has recently created a new web page that provides
guidance on the above information. For additional information
please visit:
http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6
http://www.irs.gov/newsroom/article/0,,id=220839,00.html
For further information and clarification on these matters,
please contact Cheryl A. Prout, CPA and Partner at (716) 250-6600.
