The Patient Protection and Affordable Care Act (H.R. 3590), was passed by Congress on Sunday and signed into law today, March 23, 2010, by President Obama. This new healthcare legislation contains numerous tax provisions which may impact individuals and businesses.
Along with the newly enacted Patient Protection and Affordable Care Act, the Health Care and Education Tax Credits Reconciliation Act of 2010 (H.R. 4872), passed the Senate and subsequently the House on March 25. President Obama is expected to sign it into law quickly.
This is an executive summary of the many tax provisions in both the Patient Protection Act and the House Reconciliation Act. This information is not intended to provide tax advice regarding any individual or business’ particular situation.
If you have any questions regarding how the Patient Protection Act and the House Reconciliation Act may apply to you or your business, please contact your RubinBrown advisor.
Overall, the newly enacted healthcare legislation will fundamentally alter the healthcare landscape for individuals and employers.
All individuals not covered by Medicaid or Medicare would be required to obtain health care coverage or pay penalties. Employer provided coverage satisfies the universal coverage requirement.
Penalties For Remaining Uninsured
- Beginning in 2016, the greater of: (1) 2.5 percent of household income over the income threshold required for income tax return filing, OR (2) $695 per uninsured adult.
- Maximum penalty cannot exceed 300 percent of the per adult penalty ($2085).
- Phased-in per adult: $95 in 2014; $325 in 2015; $695 in 2016 for the flat fee or 1 percent of taxable income in 2014, 2 percent in 2015, and 2.5 percent in 2016.
- For individuals under the age of 18 or in college, the applicable flat dollar penalty would be one-half of the above amounts.
- Tax credits and reduced cost sharing apply to qualified individuals based on a sliding scale.
- The subsidy credit starts at 133 percent of the federal poverty level.
- Medicaid coverage is expanded to cover those with income less than 133 percent of the federal poverty level.
Employers are not required by this legislation to provide health coverage, but “applicable large employers” that do not will be liable for an additional tax. 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 one-twelfth of $2,000. The penalty would apply to employers with 50 or more workers but would subtract the first 30 workers from the payment calculation. Businesses with fewer than 50 employees would be exempt from any employer responsibility.
In addition, the bill requires employer W-2 reporting of the value of health benefits.
Small Business Tax Credits
- From 2010-2013, eligible employers (fewer than 25 employees and average annual wages of $50,000) may qualify for a tax credit of up to 35 percent of their contribution toward employees’ health insurance premium.
- In 2014 and beyond, eligible employers may qualify for a credit for two years of up to 50 percent of their contribution.
Other Significant Provisions
Additional Medicare Payroll Tax
- Increased Medicare tax on employees of 0.9 percent on earned income in excess of $200,000 for individuals and $250,000 for joint filers (rate increased from 1.45 percent to 2.35 percent ) beginning in 2013.
- Imposition of Medicare tax on unearned income at 3.8 percent of investment income (e.g., interest, dividends, rents, etc.) for adjusted gross income in excess of $200,000 for individuals and $250,000 for joint filers beginning in 2013.
Tax On High Cost Insurance
- 40 percent surtax on high-cost health insurance beginning in 2018, to the extent the annual premium exceeds $10,200 for single coverage, $27,500 for family coverage.
- Children are permitted to stay on their parents' insurance policies until they are 27 years of age.
FSAs & HSAs
- Flexible Spending Accounts and Health Savings Accounts must use the definition of medical expense for itemized deduction purposes – over-the-counter medicines will no longer be available for reimbursement beginning in 2011
- Health Flexible Spending Accounts are capped at $2,500 per year after 2013 (to be indexed annual for inflation after 2013)
- Nonqualified distributions from Health Savings Accounts increased from 10 percent to 15 percent effective for distributions after 2010
- Nonqualified distributions from Archer Medical Savings Accounts increased from 15 percent to 20 percent effective for distributions after 2010
Medical Expense Deduction
- Threshold for itemized medical expenses increased from 7.5 percent of adjusted gross income to 10 percent effective for years beginning after December 31, 2012, except the effective date for individuals age 65+ and their spouses will be years beginning after December 31, 2016.
Please contact us if you have questions or concerns regarding this information. We look forward to your feedback!
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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