As all of use hurtle down the road toward the implementation of the 2010 health care legislation it sure does appear that the health care legislation will certainly create its own health problems... especially for your tax adviser! There is a lot to know about the 2010 health care legislation in order to take advantage of favorable provisions and to avoid or minimize penalties.
The health care legislation enacted in March 2010—the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, as amended by the Health Care and Education Reconciliation Act, P.L.111-152—is almost 1,000 pages long. It involves numerous rules on employer-provided health care, insurance exchanges, insured rights, and the health care delivery system. There are numerous tax provisions. Guidance from the IRS and other government agencies has been emerging since 2010, and much of it is quite lengthy.
The Affordable Care Act includes a variety of measures specifically for small businesses that help lower premium cost growth and increase access to quality, affordable health insurance. Depending on whether you are self-employed, an employer with fewer than 25 employees, an employer with fewer than 50 employees, or an employer with 50 or more employees, different provisions of the Affordable Care Act may apply to you.
The IRS website on the Affordable Care Act lists more than two dozen topics (as of February 2013 anyway).
Provisions in the tax law coming into effect in 2014 involve a new vocabulary that includes the following terms.
- Specified health insurance policy.
- Applicable large employer.
- Minimum essential coverage.
- Eligible employer-sponsored plan.
Starting in 2014, individuals and large employers may face penalties for not having or offering adequate insurance, i.e., minimum essential coverage.
New tax rules
Are you ready to get queasy about the immensity of health care legislation? Take a look at the number of new, amended, or broadened tax provisions kicking in, most of which are listed below:
- Sec. 36B, refundable credit for coverage under a qualified health plan (premium tax credit) (starts in 2014).
- Sec. 280C(g), disallowance of deduction for premiums equal to Sec. 36B credit claimed.
- Sec. 45R, employee health insurance expenses of small employers—a tax credit for small employers.
- Sec. 280C(h), disallowance of deduction for premiums equal to Sec. 45R credit claimed.
- Sec. 48D, qualifying therapeutic discovery project credit.
- Sec. 125(i), limitation on health flexible spending arrangements.
- Sec. 139D, Indian health care benefits.
- Sec. 162(m)(6), special rule for application to certain health insurance providers.
- Sec. 213(a), deduction for medical expenses changed from the excess of such expenses over 7.5% of adjusted gross income (AGI) to 10% of AGI (applies to taxpayers 65 and older starting in 2017).
- Secs. 1401(b)(2) and 3101(b)(2), additional 0.9% Medicare tax on upper-income employees and self-employed individuals.
- Sec. 1411, imposition of 3.8% tax on net investment income of certain individuals, estates, and trusts.
- Sec. 4191, medical device excise tax (2.3% tax starting in 2013).
- Sec. 4375, health insurance (fee).
- Sec. 4376, self-insured health plans (fee).
- Sec. 4377, definitions and special rules (related to Secs. 4375 and 4376).
- Sec. 4959, taxes on failures by hospital organizations.
- Sec. 4980H, shared-responsibility for employers regarding health coverage (starts in 2014 for “applicable large employers”).
- Sec. 4980I, excise tax on high-cost employer-sponsored health coverage (starts in 2018).
- Sec. 5000A, requirement to maintain minimum essential coverage (the so-called individual mandate starts in 2014).
- Sec. 5000B, imposition of tax on indoor tanning services.
- Sec. 6051(a)(14), W-2 reporting for certain employer-provided coverage.
- Sec. 6055, reporting of health insurance coverage (starts in 2014 for “every person who provides minimum essential coverage to an individual during a calendar year”).
- Sec. 6056, certain employers required to report on health insurance coverage (starts in 2014 for “applicable large employers”).
- Sec. 6103(l)(21), disclosure of return information to carry out eligibility requirements for certain programs.
- Sec. 9815, additional market reforms (new requirements for group health plans).
- Branded prescription drug fee, PPACA Section 9008 and temporary regulations (T.D. 9544).
Get ready for more forms and compliance
The new rules affect not only the finances and taxes of individuals and businesses, but also the financial statements of businesses. For example, to know if liabilities and expenses are properly reflected for financial statement purposes, CPAs will need to know if you are a large employer subject to the Sec. 4980H “assessable payment,” which can be as high as $3,000 per employee. In addition, there are penalties for failure to follow certain reporting and compliance requirements that may need to be disclosed or recorded.
No doubt, there is a lot to know to determine how and if you or your business is effected by new tax rules and what that effect is. In addition, there are numerous rules outside of the tax area that can affect your health insurance coverage and finances. The health care legislation presents a whole new challenge for just about every taxpayer -- business owner or employee.
At Scholl & Company, CPA we're ready to help you navigate the health care reform. Call or email us for a free consultation and evaluation of your exposure.
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