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E-NEWSLETTER
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How Will the Health Care Bill Affect Your Taxes?On March 23, 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 tax returns in the future. The following overview of the tax-related provisions of the legislation is based upon the House of Representatives’ version and the one signed by President Obama on March 24, 2010. The provisions take effect over a number of years (2018). Excludable Medical Reimbursements for Older Children Effective on Mar. 30, 2010, the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plans is extended to any child of an employee who hasn't attained age 27 as of the end of the tax year. Big Break for Self-Employed Health Insurance Deduction Generally, 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 certain requirements, commonly referred to as the self-employed health insurance deduction. Effective on March 30, 2010, this above-the-line deduction can include medical insurance on behalf of the self-employed individual’s child under the age of 27 as of the end of the year. Tax Credits for Small Employers Offering Health Coverage For tax years 2010 through 2013, qualified small employers, generally those with no more than 25 full-time employees with an average annual full-time equivalent wage of no more than $50,000, will be eligible for a tax credit of up to 35% of the cost of non-elective contributions to purchase health insurance for its employees. The maximum credit is available to employers with no more than 10 full-time equivalent employees with an annual full-time equivalent wage from the employer of less than $25,000. 2014 and Later - In 2014 and later, eligible small employers who purchase coverage through the Insurance Exchange would be eligible for a tax credit for two years of up to 50% of their contribution. Adoption Credit Limit Raised, Made Refundable and Extended One of the non-health care related items included in the new law is an increase in the dollar limitation for the adoption credit to $13,170 (adjusted for inflation after 2010) and an extension of the credit through 2011. The credit also is changed from being nonrefundable to a refundable credit. Tanning Services Excise Tax 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. Over-the-Counter Medication Restriction for Employer-Provided Plans 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 savings accounts (FSAs), health savings accounts (HSAs), and Archer medical savings accounts (MSAs). Small Employer Simple Cafeteria Plans 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–
Increased Tax on Nonqualifying HSA or Archer MSA Distributions Beginning in 2011, 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. Expansion of Information Return Reporting Currently a business paying more than $600 per year to a noncorporate service provider who isn’t an employee is required to file an information return (Form 1099-MISC). The new law expands the return filing requirement to include both corporate and noncorporate providers of property and services, beginning with tax years beginning in 2011. Employer Flexible Health Spending Plan Contributions Limited Beginning in 2013, the maximum that can be contributed to an employer’s health flexible spending accounts (FSAs) would be limited to $2,500 per year. The amount will be indexed for inflation after 2013. Medical Itemized Deductions Limited – Beginning in 2013, the itemized deduction for medical expenses will be limited in the following manner:
Taxpayers Earning Over $200,000 Beginning in 2013, higher-income taxpayers will be subject to the following additional taxes:
Penalty For Not Being Insured Beginning in 2014, taxpayers will be penalized for failing to maintain the minimum essential coverage. The penalty will be phased in beginning in 2014 and the fully-implemented penalty in 2016 will be the greater of:
Maximum Penalty – The total household penalty cannot exceed 300% of the per-adult penalty ($2,085) or national annual premium for the “bronze level” health plan offered through the Insurance Exchange that year for the household size. Penalties are based upon the months that the required insurance is not in force.
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