The Reconciliation Act of 2010 (H.R. 4872), which also passed
the House on March 21, 2010, contains many other tax items,
including extending the general exclusion for reimbursements
for medical care expenses under an employer-provided accident
or health plan to any child of an employee who has not
attained age 27 as of the end of the tax year and codifying
the economic substance doctrine. The reconciliation bill has
not yet passed the Senate.
Among
the many tax provisions in the Patient Protection and
Affordable Care Act are the following:
Premium
Assistance Credit
The act provides for refundable tax credits that eligible taxpayers can use to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through a state health benefit exchange (which each state is required to establish under section 1311 of the act). Under new IRS § 36B, an eligible individual will enroll in a plan offered through an exchange and report his or her income to the exchange. Based on the information provided to the exchange and his or her income, the individual will receive a premium assistance credit. Treasury will pay the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual will then pay to the plan in which he or she is enrolled the dollar difference between the premium tax credit amount and the total premium charged for the plan.
Eligibility
for the premium assistance credit is based on the
individual’s income for the tax year ending two years
prior to the enrollment period. The premium assistance credit
is available for individuals (single or joint filers) with
household incomes between 100% and 400% of the federal
poverty level (for the family size involved) who do not
received health insurance through an employer or a
spouse’s employer. The credit amount is determined by
the Secretary of Health and Human Services, based on the
percentage of income the cost of premiums represents, rising
from 2% of income for those at 100% of federal poverty level
for the family size involved to 9.5% of income for those at
400% of federal poverty level for the family size
involved.
The
premium assistance credit will be available for years ending
after Dec. 31, 2013.
Small
Business Tax Credit
The act
provides tax credits for small businesses
and individuals designed to increase levels of health
insurance coverage, as part of the IRC § 38 general
business credit. Small businesses—defined as businesses
with 25 or fewer employees and average annual wages of less
than $40,000—would be eligible for a credit of up to
50% of nonelective contributions the business makes on behalf
of their employees for insurance premiums (new IRC §
45R). Tax-exempt organizations would get a 35% credit against
payroll taxes.
Employers
with 10 or fewer employees and average wages of less than
$20,000 would get 100% of the credit; it would be phased out,
up to the 25-employee limit. The $20,000 average annual wages
figure will be indexed for inflation after 2013. Five-percent
owners under the section 416 top-heavy plan rules and 2% S
corporation shareholders are not included in the definition
of employee, but leased employees are counted.
This
credit is available for tax years beginning after Dec. 31,
2009.
Excise
Tax on Uninsured Individuals
The act
creates new IRC § 5000A, which requires U.S. citizens
and legal residents to maintain minimum amounts of health
insurance coverage. Minimum essential coverage includes
various government-sponsored programs, eligible
employer-sponsored plans, plans in the individual market,
grandfathered group health plans and other coverage as
recognized by the Secretary of Health and Human Services in
coordination with the Secretary of the Treasury. This
requirement would not apply to individuals who are
incarcerated, not legally present in the United States or
maintain religious exemptions.
Individuals
who fail to maintain minimum essential coverage will be
subject to a penalty equal to $750. The fee for an uninsured
individual under age 18 is one-half of the adult fee. The
total household penalty may not exceed 300% of the per-adult
penalty.
The
penalty amount will be phased in over the years
2014–2016 and will be indexed for inflation after 2016.
However, liens and seizures are not authorized to enforce
this penalty, and noncompliance will not be subject to
criminal penalties.
This
provision is effective for tax years beginning after Dec. 31,
2013. The reconciliation bill if enacted would change the
amount of the penalty.
Tax-Exempt
Health Insurers
The act
provides for a program administered by the Department of
Health and Human Services that will foster the creation of
qualified nonprofit health insurance issuers to offer health
insurance. Insurers receiving federal grants or loans under
the program would be exempt from federal tax (under IRC
§ 501(a)) for periods when the insurer complies with the
terms of the program.
Reporting
Requirements
The act
requires insurers (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 Secretary may
require.
This
requirement is effective for calendar years beginning after
2013.
Medical
Care Itemized Deduction Threshold
The
threshold for the itemized deduction for unreimbursed medical
expenses is increased from 7.5% of AGI to 10% of AGI for
regular income tax purposes. This is effective for tax years
beginning after Dec. 31, 2012, except that for 2013, 2014,
2015 and 2016, if either the taxpayer or the taxpayer’s
spouse turns 65 before the end of the tax year, the increased
threshold does not apply and the threshold remains at 7.5% of
AGI.
Cafeteria
Plans
The act
makes premiums for coverage under a qualified health plan
offered through an exchange a qualified benefit under a
cafeteria plan. This provision applies only to cafeteria
plans established by a small employer that elects to make all
its full-time employees eligible for one or more qualified
plans offered in the small group market through an
exchange.
This
provision is effective for tax years beginning after Dec. 31,
2013.
Additional
Hospital Insurance Tax on High-Income
Taxpayers
Under
the act, the employee portion of the hospital insurance tax
part of FICA, currently amounting to 1.45% of covered wages,
is increased by 0.9% on wages that exceed a threshold amount.
The additional tax is imposed on the combined wages of both
the taxpayer and the taxpayer’s spouse, in the case of
a joint return. The threshold amount is $250,000 in the case
of a joint return or surviving spouse, $125,000 in the case
of a married individual filing a separate return, and
$200,000 in any other case.
For
self-employed taxpayers, the same additional hospital
insurance tax applies to the hospital insurance portion of
SECA tax on self-employment income in excess of the threshold
amount.
The
provision applies to remuneration received and tax years
beginning after Dec. 31, 2012.
Employer
Responsibility
Under
new IRC § 4980H, an “applicable large
employer” 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.
An
applicable large employer who fails to offer its full-time
employees and their dependents the opportunity to enroll in
minimum essential coverage under an employer-sponsored plan
for any month is subject to a penalty if at least one of its
full-time employees is certified to the employer as having
enrolled in health insurance coverage purchased through a
state exchange with respect to which a premium tax credit or
cost-sharing reduction is allowed or paid to such employee or
employees. 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.
An
applicable large employer who offers, for any month, its
full-time employees and their dependents the opportunity to
enroll in minimum essential coverage under an
employer-sponsored plan is subject to a penalty if any
full-time employee is certified to the employer as having
enrolled in health insurance coverage purchased through a
state exchange with respect to which a premium tax credit or
cost-sharing reduction is allowed or paid to such employee or
employees.
This
provision is effective for months beginning after Dec. 31,
2013.
Fees on
Health Plans
Under
new section 4375, a fee is imposed on each specified health
insurance policy. The fee is equal to two dollars (one dollar
in the case of policy years ending during fiscal year 2013)
multiplied by the average number of lives covered under the
policy. The issuer of the policy is liable for payment of the
fee.
For any
policy year beginning after September 30, 2014, the dollar
amount is equal to the sum of: (1) the dollar amount for
policy years ending in the preceding fiscal year, plus (2) an
amount equal to the product of (A) the dollar amount for
policy years ending in the preceding fiscal year, multiplied
by (B) the percentage increase in the projected per capita
amount of National Health Expenditures, as most recently
published by the Secretary before the beginning of the fiscal
year.
The
issuer of the policy is liable for payment of the
fee.
In the
case of an applicable self-insured health plan, new IRC
§ 4376 imposes a fee equal to two dollars (one dollar in
the case of policy years ending during fiscal year 2013)
multiplied by the average number of lives covered under the
plan. For any policy year beginning after September 30, 2014,
the dollar amount is equal to the sum of: (1) the dollar
amount for policy years ending in the preceding fiscal year,
plus (2) an amount equal to the product of (A) the dollar
amount for policy years ending in the preceding fiscal year,
multiplied by (B) the percentage increase in the projected
per capita amount of National Health Expenditures, as most
recently published by the Secretary before the beginning of
the fiscal year. The plan sponsor is liable for payment of
the fee.
The fee
is effective with respect to policies and plans for portions
of policy or plan years beginning on or after Oct. 1,
2012.
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).
The
provision is effective for tax years beginning after Dec. 31,
2017.
Tax on
HSA Distributions
The
additional tax on distributions from a health savings account
(HSA) or an Archer medical savings account (MSA) that are not
used for qualified medical expenses is increased to 20% of
the disbursed amount, effective for disbursements made during
tax years starting after Dec. 31, 2010.
Tax on
Indoor Tanning Services
The act
imposes a 10% tax on amounts paid for indoor tanning services
(new IRC § 5000B). Like a sales tax, the tax will be
collected from the person tanning when payment for the
tanning services is made. The provision applies to services
performed on or after July 1, 2010.
Flexible
Spending Account
The act
mandates that 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 a health
flexible spending account for a plan year (or other 12-month
coverage period) must not exceed $2,500. The provision is
effective for tax years beginning after Dec. 31,
2012.
SIMPLE
Cafeteria Plans for Small Business
The 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.
Expansion
of Adoption Credit, Adoption Assistance
Programs
For
2010, the maximum adoption credit is increased to $13,170 per
eligible child (a $1,000 increase). This increase applies to
both non-special needs adoptions and special needs adoptions.
Also, the adoption credit is made refundable. The new dollar
limit and phase-out of the adoption credit are adjusted for
inflation in tax years beginning after Dec. 31, 2010. Also,
the scheduled sunset of EGTRRA provisions relating to the
adoption credit is delayed for one year (i.e., the sunset
becomes effective for tax years beginning after Dec. 31,
2011).
For
adoption assistance programs, the maximum exclusion is
increased to $13,170 per eligible child (a $1,000 increase).
The new dollar limit and income limitations of the
employer-provided adoption assistance exclusion are adjusted
for inflation in tax years beginning after Dec. 31, 2010. The
EGTRRA sunset of provisions relating to adoption assistance
programs is also delayed for one year (i.e., the sunset
becomes effective for tax years beginning after Dec. 31,
2011).
Charitable
Hospitals
The act
establishes new requirements applicable to section 501(c)(3)
hospitals, regarding conducting a community health needs
assessment, adopting a written financial assistance policy,
limitations on charges, and collection
activities.
Information
Reporting
The 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.
The act
requires businesses to file an information return (e.g., a
Form 1099) for all payments aggregating $600 or more in a
calendar year to a single payee, including corporations
(other than a payee that is a tax-exempt corporation). The
provision is effective for payments made after Dec. 31,
2011.
Return
Information Disclosure
The act
allows the IRS, upon written request of the Secretary of
Health and Human Services, to disclose certain taxpayer
return information if the taxpayer’s income is relevant
in determining the amount of the tax credit or cost-sharing
reduction, or eligibility for participation in the specified
state health subsidy programs.
Upon written request from the Commissioner of Social Security, the IRS may disclose the certain limited return information of a taxpayer whose Medicare Part D premium subsidy, according to the records of the Secretary, may be subject to adjustment.
(Source: Journal of Accountancy March 22, 2010)