Overview of Tax Provisions of Health Care Act and HIRE Act


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A presentation I prepared for a seminar held for the local business community regarding the tax provisions of the Health Care Act and HIRE Act.

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Overview of Tax Provisions of Health Care Act and HIRE Act

  1. 1. Machen, McChesney & Chastain<br />Overview of Tax Provisions of Health Care Act and HIRE Act.<br />
  2. 2. 2010 Health Care Act<br />Multiple provisions affecting individuals and businesses.<br />Provisions phase in over time beginning in 2010 but continuing to phase in through 2018.<br />Presentation is organized by phase in date beginning with 2010.<br />Still waiting on additional guidance from IRS on many provisions.<br />
  3. 3. Health Care Bill: 2010 Provisions<br />Small Business Employer Health Insurance Tax Credit<br />Adult Children Insurance Coverage<br />Indoor Tanning Tax<br />Adoption Tax Credit<br />Rebate for Medicare Recipients Affected by “Donut Hole”<br />
  4. 4. 2010: Small Business Employer Tax Credit for Health Insurance<br />Who qualifies?<br />An employer (for profit and not-for-profit) with no more than 25-full time employees (including FTE’s),<br />With average annual wages of not more than $50,000, and<br />Providing at least 50% of the cost of health insurance premiums for qualified employees.<br />Employee definition does not include partners, greater than 2% shareholders, or family members of these partners or shareholders.<br />NOTE: This is a simplified list of qualifications. We can assist with ascertaining whether your business qualifies.<br />
  5. 5. 2010: Small Business Employer Tax Credit for Health Insurance – Cont.<br />How is credit calculated and used?<br />The credit will offset regular and AMT tax liability dollar for dollar (component of general business credit).<br />The credit is available for 2010 -2013.<br />The credit is 35% (25% for not-for-profit entities) of the employer’s contribution toward the employee’s health care insurance cost.<br />There is a phase out of the credit based on salary amounts and number of employees. We can assist with an estimated calculation for you.<br />
  6. 6. 2010: Small Business Employer Tax Credit for Health Insurance – Cont.<br />Other Considerations<br />MM&C can assist with ensuring that your business qualifies for the credit given the complexity of qualification provisions.<br />We can also assist with calculations to ascertain an estimated credit amount as well as helping to determine when you would be able to benefit from the credit given your unique business situation.<br />
  7. 7. 2010: Miscellaneous Provisions<br />Adult Children Coverage:<br />Family insurance coverage must now apply to dependents up to age 26.<br />Indoor Tanning Tax:<br />Adoption Credit:<br />Refundable credit amount increased to $13,170.<br />Medicare Recipients Affected by “Donut Hole”:<br />Eligible for $250 rebate.<br />
  8. 8. Health Care Bill: 2011 Provisions<br />FSAs / HSAs:<br />Purchases after 12/31/10 of non-prescription, over-the-counter medicines will no longer be covered.<br />This change should be considered when setting 2011 contribution amounts (Use or lose).<br />Planning tip: OTC available drugs WILL be covered IF you have a prescription, so discuss with your physician.<br />W-2s:<br />2011 Forms W-2 must disclose the total cost of employer sponsored health care insurance coverage.<br />
  9. 9. Health Care Bill: 2012 Provision<br />Changes in Information Reporting Requirements:<br />Prior to 1/1/12, payments made to corporations were not subject to informational reporting (Forms 1099).<br />Payments of $600 or more for goods or services made to corporations (with the exception of tax-exempt corps) must be reported to the IRS (i.e., purchases from vendors like Wal-Mart, Staples, etc.).<br />Potential Changes: There are rumblings from Washington about easing these onerous reporting rules, so stay tuned. The MMC payroll group will be able to assist with any changes that come about.<br />
  10. 10. Health Care Bill: 2013 Provisions<br />Select Provisions:<br />Medicare Tax on Unearned Income<br />Additional Medicare Payroll Tax<br />Itemized Deduction for Medical Expenses<br />Cap on FSA Contributions<br />
  11. 11. Health Care Bill: 2013 Provisions – Medicare Tax on Unearned Income<br />Currently, there is no Medicare tax on unearned income.<br />Beginning in 2013, there will be a Medicare tax of 3.8% imposed on the lesser of:<br />Net investment income or<br />The excess of modified AGI over the threshold amount ($200,000 for single filers or heads of household; $250,000 for married filing jointly couples; $125,000 for married couples filing separately).<br />
  12. 12. Health Care Bill: 2013 Provisions - Medicare Tax on Unearned Income Continued<br />Net investment income includes following:<br />Interest,<br />Dividends,<br />Royalties,<br />Rents,<br />Gains from passive activities,<br />Income earned from a passive trade or business,<br />Reduced by investment related deductions.<br />
  13. 13. Health Care Bill: 2013 Provisions - Medicare Tax on Unearned Income Continued<br />Estates and trusts will also be subject to a 3.8% Medicare tax on the lesser of:<br />Undistributed net income for the year or<br />Any excess of adjusted gross income over the dollar amount at which the highest tax bracket for estates and trusts begins for the year (currently $11,200 but subject to annual inflation adjustments).<br />Charitable remainder trusts and other tax-exempt trusts are not subject to Medicare tax.<br />
  14. 14. Health Care Bill: 2013 Provisions – Cont.<br />Additional Medicare Payroll Tax:<br />An additional hospital insurance tax of .9% will be imposed on earned income in excess of $200,000 for single filers (in excess of $250,000 for married filing jointly filers)<br />Itemized Deductions for Medical Expenses:<br />The threshold for deducting medical expenses will increase from 7.5% to 10%.<br />Individuals age 65 and over will be exempt from the threshold increase until 2017.<br />Cap on FSA Contributions:<br />The maximum annual contribution will be $2,500 beginning in 2013. The amount will be indexed for inflation after 2013.<br />
  15. 15. Health Care Bill: 2014 Provisions<br />Select Provisions:<br />Minimum Essential Health Insurance Coverage<br />Health Insurance Coverage Subsidies<br />Health Insurance Provisions for Large Employers<br />
  16. 16. Health Care Bill: 2014 Provisions – Minimum Essential Coverage<br />Beginning in 2014, individuals who fail to maintain minimum essential coverage (“MEC”) will be liable for a penalty.<br />The monthly penalty amount is 1/12 of the greater of the:<br />Flat dollar amount ($95 - $695 annually for 2014-2016) or<br />Applicable percentage of income (1% - 2.5% annually for 2014 – 2016)<br />Those individuals with coverage through their employers will generally satisfy the MEC standards.<br />More information and guidelines regarding MEC will be forthcoming from the government over the coming months.<br />
  17. 17. Health Care Bill: 2014 Provisions – Coverage Subsidies<br />The health care insurance premium assistance tax credit is designed to ensure that qualified individuals do not spend more than a specific percentage of income on health care insurance premiums.<br />Premium assistance is based on an individual’s (or family’s) relationship between income and the federal poverty level.<br />
  18. 18. Health Care Bill: 2014 Provisions – Large Employers<br />Large Employer Definition:<br />Generally 50 or more full-time employees<br />An employee is considered full-time if he or she works 30 or more hours per week. <br />A non-deductible penalty will be assessed if the employer fails to allow full-time employees and dependents to enroll in an employer sponsored plan.<br />The penalty would range between $166.67 and $250 per month, per employee.<br />As with minimum essential coverage, more information will be forth coming regarding this provision.<br />
  19. 19. Health Care Bill: 2018 Provision<br />40% Excise Tax on High-Cost Insurance<br />A 40% non-deductible excise tax will be imposed on insurance companies or plan administrators offering health insurance plans with annual premiums in excess of inflation adjusted $10,200 for individuals ($27,500 for families).<br />Higher premium amounts are allowed without penalty for certain high-risk professions.<br />The premium amounts subject to penalties will be indexed for inflation annually.<br />
  20. 20. Health Care Bill: BEWARE<br />Numerous emails have been brought to our attention that “highlight” various provisions of the Health Care Bill.<br />Many of these emails mention provisions that are not included in the actual law.<br />If you get such an email and have questions, we can help.<br />
  21. 21. HIRE Act: Payroll Tax Forgiveness<br />The qualified employer’s 6.2% OASDI Social Security tax is forgiven for certain qualified employees hired between March 18, 2010 and January 1, 2011.<br />OADSI is forgiven for 52-weeks so long as the qualified employee remains employed during this period.<br />Qualified employees must not have been employed for more than 40-hours during the 60-day period ending on the date the employee begins the qualifying employment.<br />The qualified employee cannot displace a current employee unless the current employee was terminated voluntarily or for cause.<br />Qualified employers include any US employer with the exception of federal and state employees. Note that state university and college employers are qualified employees.<br />
  22. 22. HIRE Act: Payroll Tax Forgiveness - Continued<br />Payroll tax forgiveness is claimed on quarterly Forms 941.<br />Form W-11 must be completed for any qualifying employees.<br />Contact our payroll tax department for assistance with qualifying for and claiming your payroll tax forgiveness.<br />
  23. 23. HIRE Act: Retained Working Business Credit<br />Employers hiring new workers that qualify for payroll tax forgiveness who keep these employees for at least 52-consecutive weeks should be eligible for an income tax credit for these employees.<br />The credit for each worker is the lesser of:<br />$1,000 or<br />6.2% of wages paid during the 52-week consecutive period.<br />Note that this credit will not be available until 2011 given the 52-consecutive week requirement.<br />
  24. 24. HIRE Act: Sec. 179 Expensing<br />Prior to the passage of the HIRE Act, Sec. 179 expensing was slated to be reduced for 2010.<br />The HIRE Act allows a maximum Sec. 179 expensing of $250,000 including a $800,000 cap on fixed asset additions.<br />
  25. 25. Alabama Hiring Incentives Act<br />Alabama provides an additional deduction equal to 50% of a qualified employees wages.<br />A qualified employee is a newly hired worker who has been receiving state unemployment benefits or was receiving state unemployment benefits prior to the expiration of these benefits.<br />Qualified employees must also be employed at least 12-months before the employer is eligible for the extra deduction.<br />Given the enactment date of the legislation, the earliest additional deductions will be available is April 22, 2011.<br />