News

News and Press Releases

Tax Law Changes Affecting Businesses in the 2010 Health Care Reform Legislation

For business owners and their workers, the recently enacted health reform legislation has some key provisions to pay attention to. The major ones include: tax credits; excise taxes; and penalties. But whether a business will be affected by them depends on a variety of factors, such as number of employees and type of insurance plan the company offers its employees. Please call our offices for details of how the new changes may affect your specific business.

TAX CREDITS TO CERTAIN SMALL EMPLOYERS
THAT PROVIDE INSURANCE

The new law provides small employers with a tax credit (i.e., a dollar-for-dollar reduction in tax) for non-elective contributions to purchase health insurance for their employees. The credit can offset an employer's regular tax or its alternative minimum tax (AMT) liability.

Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least 50% of the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of not more than $25,000.

Years the credit is available. The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law.

Calculating the amount of the credit. For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% of the employer's non-elective contributions toward the employees' health insurance premiums. The credit phases out as firm-size and average wages increase.

Self-employed individuals, including partners and sole proprietors, two percent shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.

EMPLOYER RESPONSIBILITY

Under new IRC § 4980H, an “applicable large employer” (generally more than 50 employees) that does not offer coverage for all its full-time employees, offers minimum essential coverage that is unaffordable, or offers 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%, is required 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.

An employer is an applicable large employer with respect to any calendar year if it employed an average of at least 50 full-time employees during the preceding calendar year.

The penalty for any month is an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) multiplied by $166.67 (one-twelfth of $2,000).

This provision is effective for months beginning after Dec. 31, 2013.

EXCISE TAX ON HIGH-COST EMPLOYER PLANS

New IRC § 4980I imposes an excise tax on insurers if the aggregate value of employer-sponsored health insurance coverage for an employee (including, for purposes of the provision, any former employee, surviving spouse and any other primary insured individual) exceeds a threshold amount. The tax is equal to 40% of the aggregate value that exceeds the threshold amount. For 2018, the threshold amount is $10,200 for individual coverage and $27,500 for family coverage, multiplied by the health cost adjustment percentage (as defined in the act) and increased by the age and gender adjusted excess premium amount (as defined in the act).

Retirees and employees in certain high-risk professions or who repair or install electrical or telecommunications lines have a higher limit. After 2018, the annual limitation is adjusted for inflation.

The provision is effective for tax years beginning after Dec. 31, 2017.

REPORTING requirements

The Patient Protection Act requires employers (including employers who self-insure) that provide minimum essential coverage to any individual during a calendar year to report certain health insurance coverage information to both the covered individual and to the IRS (new IRC § 6055).

The information required to be reported includes: (1) the name, address and taxpayer identification number of the primary insured, and the name and taxpayer identification number of each other individual obtaining coverage under the policy; (2) the dates during which the individual was covered under the policy during the calendar year; (3) whether the coverage is a qualified health plan offered through an exchange; (4) the amount of any premium tax credit or cost-sharing reduction received by the individual with respect to such coverage; and (5) such other information as the Treasury secretary may require.

This requirement is effective for calendar years beginning after 2013.

INFORMATION REPORTING

The Patient Protection Act requires employers to disclose on each employee’s annual Form W-2 the value of the employee’s health insurance coverage sponsored by the employer, effective for tax years beginning after Dec. 31, 2010.

SIMPLE CAFETERIA PLANS FOR SMALL BUSINESSES

The Patient Protection Act establishes a SIMPLE cafeteria plan for small businesses. Under the provision, an eligible small employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for specified qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self-insured medical expense reimbursement plan, and benefits under a dependent care assistance program. Under the safe harbor, a cafeteria plan and the specified qualified benefits are treated as meeting the specified nondiscrimination rules if the cafeteria plan satisfies minimum eligibility and participation requirements and minimum contribution requirements.

The provision is effective for tax years beginning after Dec. 31, 2010.

HEALTH CARE AND RECONCILIATION ACTS OF 2010 TIMETABLE FOR BUSINESS REFORMS (2009 – 2018)
2009	Investment Tax Credit for qualifying therapeutic discovery projects.	$1 billion allocated 2009 - 2010 Grant in lieu of credit available Companies having 250 or fewer employees 50% credit for qualified investments
2010	Credit for small employer health insurance expenses	35% increasing to 50% in 2014 Full credit if less than 11 employees Phase-out to 50% of credit if 11 - 25 employees Full phase-out after 2015 A “specified credit” that can offset 100% of AMT
2011	W-2 reporting of employee compensation	W-2 must include and disclose the value of employer-provided health insurance
	HSA and Archer MSA penalties increase to 20%	Distributions for nonqualified medical use
	Small employer cafeteria plans	Small employers (up to 100 employees) Safer harbors for nondiscrimination requirements
2012	1099 reporting	Businesses paying amounts greater than $600 per year Nonexempt corporate providers of property or services
2013	0.9% Hospital Insurance tax increase	Income exceeding $200k single / $250k married Applies to self employment income
	FSA contribution limitations	$2,500 cap on contributions Over the counter medications will not qualify
	Prescription drug coverage deduction	Eliminates the federal subsidy income exclusion for purposes of determining whether a deduction is allowable for retiree prescription drug expenses Payments made by the company for subsidized coverage will no longer be deductible
	Fee on health plans	Fee based on number of insured’s $2 per insured ($1 in 2013)
2014	Large Employer health insurance coverage penalty	At least 50 employees Does not offer health care coverage for all full time employees Does not offer minimum affordable coverage or Minimum benefit is less than 60% of allowed coverage
	Free Choice vouchers for basic coverage	Allows qualified employees to purchase coverage through an Insurance Exchange Treated as compensation personal services
	Qualified Cafeteria Plans	Reimbursement of premiums paid for coverage under a “qualified health plan” through an Insurance Exchange will be a qualified benefit
	Information Reporting	Large employers (generally with 50 or more employees) must report health insurance information annually Statements must also be furnished to employees by January 31 of year following coverage
2018	Excise tax on high cost health coverage	40% nondeductible excise tax on excess premium plans $10,200 individual / $27,500 family coverage Additional coverage allowed for retired (55 and older) and high risk professions of $1,650 single / $3,450 family

We hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call us at 303-740-9400.