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• Health Care Provisions

In late March 2010, President Obama signed into law the new health care legislation.  The legislation will affect virtually every individual in one way or another and will significantly impact the preparation of tax returns in the future.  The provisions take effect over a period of years and are categorized by the year they become effective.  Some of the provisions include additional taxes to offset the cost of the health care benefits included in the legislation for lower-income individuals...

Previously, an individual’s gross income didn’t include cancellation of debt income that was attributable to the discharge of all or part of any student loan if the discharge was made under a provision of the loan - that all or part of the indebtedness would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers.New Law: The law has been amended to include amounts received by an individual in tax years begin...

In 2009 and 2010, for companies with 250 or fewer employees, a 50% nonrefundable investment tax credit is allowed for expenses paid or incurred for qualified investments in qualifying therapeutic discovery projects. Qualifying Therapeutic Discovery Project - A qualifying therapeutic discovery project is one designed to develop a product, process, or therapy to diagnose, treat, or prevent diseases and afflictions by: (1) Conducting pre-clinical activities, clinical trials, clinical studies, an...

Beginning July 1, 2010, a Pre-Existing Condition Insurance Plan will provide new coverage options to individuals who have been uninsured for at least six months because of a pre-existing condition. States have the option of running this new program in their state. If a state chooses not to do so, then the individual can utilize the Federal programs.  This program serves as a bridge to 2014, when all discrimination against pre-existing conditions will be prohibited.  To learn more ab...

Too often, Americans who retire without employer-sponsored insurance and before they are eligible for Medicare see their life savings disappear because of high rates in the individual market. To preserve employer coverage for early retirees until more affordable coverage is available through the new Exchanges required to be established by 2014, the new law creates a $5 billion program to provide needed financial help for employment-based plans to continue to provide valuable coverage to peopl...

Effective for health plan years beginning on or after September 23, 2010, all new plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, co-pay or coinsurance.

Effective for health plan years beginning on or after September 23, 2010, for new plans and existing group plans, the new law includes rules to prevent insurance companies from denying coverage to children under the age of 19 due to a pre-existing condition. This limit applies to both specific coverage denials (because of a pre-existing condition) AND banning benefit limits (refusing you a policy).  This pre-existing condition will also apply to all individuals effective in 2014.

Effective for health plan years beginning on or after September 23, 2010, insurance companies may no longer retroactively cancel a policy because of sickness or an "unintentional" mistake on paperwork. The only exception is if the case involves fraud or intentional misrepresentation of the facts.

There is a phase out of annual dollar expenditure limits on health plans over the next three years until 2014 when the Affordable Care Act bans them for most plans.  Thus, plans issued or renewed beginning September 23, 2010 will be allowed to set annual limits no lower than the amounts shown in the following table: If you have additional questions, please give this office a call.

For indoor tanning services performed on or after July 1, 2010, a new 10% excise tax is imposed on the amount paid for any indoor tanning service, whether paid for by insurance or otherwise. The tax is imposed on tanning service recipients, although the service provider is liable for the collection and payment of the tax; thus, service providers are liable if they fail to collect the tax."Indoor tanning service" is a service that uses any electronic product that is designed to incorporate one...

As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.  Generally, under pre-Act law, to be a qualifying child of a taxpayer for this purpose, the child must have been the taxpayer’s dependent under age 19 (or under age 24 in the case of a full-time student). Child – Broad Definition for this Purpose Other than age, the “chi...

Background - A self-employed individual (or a partner or a more-than-2%-shareholder of an S corporation) can deduct as an above-the-line expense 100% of the amount paid during the tax year for medical insurance on behalf of himself, his spouse and his dependents subject to the following requirements (Code Sec. 162(l)(1)(B)): The deduction cannot exceed the individual’s net earnings from self-employment derived from the trade or business for which the plan providing the coverage is ...

The Patient Protection and Affordable Care Act provides a tax credit for an eligible small employer (ESE) for nonelective contributions to purchase health insurance for its employees. The term "nonelective contribution" means an employer contribution other than an employer contribution pursuant to a salary reduction arrangement.o 2010 through 2013 – For tax years 2010 through 2013, qualified small employers, generally those with no more than 25 full-time employees with an average annual full-...

Beginning in tax year 2012 (was originally scheduled to start for 2011 but has been delayed), employers will be required to disclose the aggregate cost of the benefit provided by them by the employer-sponsored health insurance coverage on the employee's annual Form W-2.  The amount included in the W-2 does not include contributions to Archer MSAs, Health Savings Accounts or flexible spending arrangements.Don’t Read Too Much Into This!  This is simply to provide an employee wit...

The additional tax for HSA withdrawals for other than qualified medical expenses before age 65 are increased from 10% to 20%, and the additional tax for Archer MSA withdrawals for other than qualified medical expenses is increased from 15% to 20%.  Distributions after age 65 are not subject to the penalty.

Beginning in 2011, over-the-counter medications, except for doctor prescribed over-the-counter medication and insulin, will no longer qualify for reimbursement.  This restriction applies to health reimbursement accounts (HRAs), health flexible spending accounts (FSAs), health savings accounts (HSAs), and Archer medical savings accounts (MSAs).

For years beginning after Dec. 31, 2010, small employers (average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a "simple cafeteria plan." Under such a plan, the 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–o including group term life insurance, o benefits unde...

For payments made after Dec. 31, 2011, businesses that pay any amount greater than $600 during the year to non-tax-exempt corporate providers of property and services will have to file an information report with each provider and with IRS.This is a BIG Deal! This means that every individual and entity that is paid for goods and services in the course of business in excess of $600 must be issued a 1099. This information-reporting provision will substantially increase the paperwork burden on bu...

The Hospital Insurance (HI) tax rate (currently at 1.45%) would be increased by 0.9 percentage points on individual taxpayer earnings (wage withholding and SE tax) in excess of compensation thresholds for the taxpayer’s filing status; see table below.Wage Withholding – Thus, the wage withholding HI rate would be 1.45% up to the income threshold and would be 2.35% (1.45 + 0.9) on amounts in excess of the threshold.SE Tax – The SE tax rate would be 2.9% up to the income threshold and would be 3...

A new surtax called the Unearned Income Medicare Contribution Tax is imposed on individuals, estates, and trusts.Individuals - For individuals, the surtax is 3.8% of the lesser of:1. The taxpayer’s net investment income or2. The excess of modified adjusted gross income over the threshold amount ($250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return, and $200,000 for all others) Potential Double Whammy This surtax is in add...

In order for a health FSA to be a qualified benefit under a cafeteria plan, the maximum amount available for reimbursement of incurred medical expenses of an employee, the employee's dependents, and any other eligible beneficiaries with respect to the employee, under the health FSA for a plan year (or other 12-month coverage period) cannot exceed $2,500. 

The itemized deduction for medical expenses will be limited in the following manner:AGI Threshold - The AGI threshold percentage for claiming medical expenses on a taxpayer’s Schedule A is increased from 7.5% to 10%, which is the same as the current threshold percentage for alternative minimum tax (AMT) purposes.   Delayed Implementation for Seniors - Individuals (and their spouses) age 65 (before close of year) and older will continue to use the 7.5% rate though 2016. ...

For services performed during that year, a covered health insurance provider isn't allowed a compensation deduction for an “applicable individual” (officers, employees, directors, and other workers or service providers such as consultants) in excess of $500,000.   

Many of the provisions of the Health Care Legislation are linked to the mandate that everyone becomes insured.  The chart included here provides an overview of how these provisions interact to achieve that goal.Click here for the chart.

By 2014, each state must establish an exchange to help individuals and small employers obtain coverage.  Benefit options will be in a standard format and a single enrollment form used for all policies.  Plans offered through an exchange must provide essential health benefits, limit cost sharing, and provide specified accrual benefits (i.e., the percentage amount paid the insurer).  Out-of-pocket deductibles are limited to caps for Health Savings Accounts and further limited to $2,000 ($4,000 ...

Non-exempt U.S. citizens and legal resident taxpayers will be penalized for failing to maintain at the least the minimum essential health coverage, which includes:o Government-sponsored programs (e.g., Medicare, Medicaid, Children's Health Insurance Program), o Eligible employer-sponsored plans, o Plans in the individual market, ando Certain grandfathered group health plans and other coverage as recognized by Health and Human Services (HHS) in coordination with IRS.The penalty will be phased ...

Tax credits will be available for low-income individuals who obtain health insurance coverage with a qualified health plan (QHP) through an “Exchange”.  "Exchange" The Health Care Act requires each state to establish an “American Health Benefit Exchange” (“Exchange”) by Jan. 1, 2014, and requires insurers to provide QHPs to be sold on these Exchanges. The Premium Assistance Credit applies to QHPs purchased on an Exchange. Applicable Taxpayers – Generally, these are individua...

Employers who offer minimum essential coverage through an eligible employer-sponsored plan and are paying a portion of that coverage will be required to offer an equivalent value voucher, allowing a qualified employee the option of purchasing coverage though the insurance exchange.  Qualified Employee – A qualified employee is one: Who does not participate in the employer-sponsored plan; Whose required contribution to the employer exceeds 8%, but does not exceed 9.5% of househo...

Large employers, generally those with 50 full-time employees in the prior calendar year, that:o Do not offer coverage for all its full-time employees, o Offer minimum essential coverage that is unaffordable (employee contribution is more than 9.5% of the employee's household income), or o Offer minimum essential coverage where the plan's share of the total allowed cost of benefits is less than 60%,Would be required to pay a penalty if any of its full-time employees were certified to the emplo...

Beginning in tax year 2018, there will be a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan where the premiums exceed the following amounts:                             Single Coverage:  $10,200 Single Coverage, high-risk employment or retired age 55 and older:  $11,850  Family covera...