2010 HEALTH CARE REFORM LEGISLATIONImportant Highlights
A TWO PART ACT Patient Protection and Affordable Care Act Enacted March 23, 2010 Health Care and Education Reconciliation Act Enacted March 30, 2010 $770 billion in revenue raisers IRS administration 2,000 page bill
2010 SMALL BUSINESS TAX CREDIT Available for those offering health coverage For qualified small business No more than 25 full time employees (FTE) with Average annual wage of no more than $50,000
2010 SMALL BUSINESS TAX CREDIT Maximum credit – The lesser of: Actual insurance paid by the employer, or What employer would have paid had employee enrolled in coverage with a small business benchmark premium Multiplied by the percentages below: 2010-2013: 35% 2014 and beyond: 50%
2010 SMALL BUSINESS TAX CREDIT Deduction for health insurance is reduced by the credit Allowed for the AMT Eligible employees include part-time and leased Include seasonal, sole-proprietors, partners, 2% S shareholders, 5% company owners and those related to such persons Definition of full time employee: Total number of hours of service by eligible employees/2080
2010 SMALL BUSINESS TAX CREDIT Credit phaseout applies and is based on: Number of full time employees #-10/15, and Average annual wage-$25,000)/$25,000
2010 SMALL BUSINESS TAX CREDIT Employer contribution must be at least 50% of the premiums paid for single (employee only coverage) Any unused credit is carried forward Aggregation rules apply
OTHER ISSUES IN 2010 Children under age 27 covered under parents’ plan 10% indoor tanning tax on services after 6/30/2010 Adoption tax credit – Increased by $1,000 up to $13,170 and made refundable (through 2011)
2010 PROVISIONS Lifetime caps eliminated on insurance for essential services Prohibits excluding children from coverage due to pre-existing conditions (2014 for adults) Insurance companies cannot rescind except in cases of fraud
2011 PROVISIONS Cost of employer paid premiums reported on W-2 Over-the-counter drugs Unless prescribed by the doctor, OTCD (other than insulin) are no longer treated as an allowable expense for FSA, HSA, HRA and MSA. Increased tax on nonqualifying HSA and MSA distributions HSA from 10% to 20% MSA from 15% to 20%
2011 PROVISIONS New Simple cafeteria plans for small businesses Disclosure of nutritional content at fast food restaurants and vending machines Grants for small employers who set up wellness programs
2012 PROVISIONS Business that pay more than $600 per year to corporate providers of property and services must issue a 1099
2013 PROVISIONS Increased threshold for claiming medical on Schedule A From 7.5% to 10% Remains at 7.5% for those age 65 and older until 2016 Additional Medicare tax on high income workers Increased by 0.9% on those earning over $250,000 joint/$200,000 single Does not impact the Medicare tax paid by the employer Employer required to withhold on wages over $200K
2013 PROVISIONS Unearned Income Medicare Contribution 3.8% surtax is imposed on net investment income Interest, dividends, royalties, rents, capital gains, passive income from a trade or business or income from the business of trading in commodities or financial instruments Excluded items: Interest on tax-exempt bonds, veteran’s benefits, gain on the sale of a principal residence, trade or business income and retirement plan distributions
2013 PROVISIONSUnearned Income Medicare Contribution Cont. The tax is imposed on the lesser of: Net investment income, or The excess of Modified Adjusted Gross Income over $250,000 joint ($200,000 single)
2013 PROVISIONS New limit on FSA contributions $2,500 per year
2014 PROVISIONS -PENALTIES FORREMAINING UNINSURED Minimum essential coverage is required to avoid the penalty The penalty is imposed on the uninsured under 18 is one-half of that imposed on adults Exempted from penalties: Cannot afford because their required contribution exceeds 8% of household income The per adult annual penalty is phased in: 2014: $95 2015: $325 2016: $695 2017 and beyond: Indexed for inflation from $695
PENALTY FOR REMAININGUNINSURED CONTINUED The maximum household penalty is 300% of the adult penalty $2,085 for 2016 (3 x $695) The penalty applies to any period essential coverage is not maintained (monthly) The penalty is to be assessed by the IRS
LARGE EMPLOYER PLAY OR PAY Large employer Had at least 50 FTE Average at least 30 hours per week during the previous calendar year Special rules for part time employees Exemption applies: The workforce exceeds 50 FTE for no more than 120 days, AND The employees in excess of 50 were seasonal
LARGE EMPLOYER PLAY ORPAY(2014) Penalty for not offering minimum essential coverage Does not offer coverage for FTE Offers unaffordable minimum essential coverage Offers minimum essential coverage where the plan pays less than 60% of the cost Will only apply if at least one FTE is enrolled in a health insurance exchange to which a premium tax credit or cost-sharing reduction is allowed 30 person threshold before the penalty kicks in
2018 PROVISIONS Excise tax on “Cadillac” plans 40% tax imposes on high cost employer- sponsored and self-insured plans Levied on insurance companies and plan administrators Applied to annual insurance premiums for those under 55 that exceed $10,200 for individuals and $27,500 for families For those aged 55 and above the threshold is $11,850 for individuals and $30,950 for families
SAVINGS FOR HEALTH & RETIREMENT Contribute to your retirement Maximum Contribution of $16,500 $22,000 if > 50 Take advantage of a Flexible Spending Account or Health Savings Account Contribute pre-tax wages to cover medical costs
OTHER SAVINGS Charitable Contributions Don’t forget to deduct any out-of-pocket costs Charitable Miles – 14 cents/mile Always get a receipt 2% Miscellaneous Deductions Job Hunting & Job Relocation Expense Unreimbursed employee expenses Job travel, professional subscriptions, parking
OTHER SAVINGS CONTINUED Energy Improvements 30% of costs up to $1,500 2010 is the last year for deductions/credits related to home energy improvements Section 179 Expense Deduction remains at $250,000 for qualified assets of $800,000
OTHER TIPS – ESTIMATED PAYMENTS Plan ahead! If your income is more than you expected, consider paying estimates. Consider using the annualization method when computing underpayment of estimated tax penalties. Don’t forget to consider early withdrawal penalties and AMT considerations when planning and making estimated payments.
2010 TAX RATES Single Married Filing Jointly Income Range Tax Of the amount Income Range Tax Of the over amount over$0 - $8,375 10% 0 $0 - $16,750 10% 0$8,376 – 34,000 837.50 + 15% 8,375 $16,751 – 68,000 1,675.00 + 15% 16,750 $68,001 – 137,300 9,362.50 + 25% 68,000$34,001 – 82,400 4,681.25 + 25% 34,000$82,401 – 171,850 16,781.25 + 28% 82,400 $37,301 – 209,250 26,687.50 + 28% 137,300$171,851 – 373,650 41,827.25 + 33% 171,850 $209,251 – 373,650 46,833.50 + 33% 209,250373,651 and over 108,421.25 + 35% 373,650 373,651 and over 101,085.50 + 35% 373,650
OTHER 2010 RATES Business Miles 50 cents/mile Personal Exemption $3,650 Kiddie Tax Threshold $1,900 Standard Deduction Single $5,700 MFJ $11,400
RECORDKEEPING TIPS Records that can support a deduction or could impact your federal return should be kept a minimum of 3 years Records regarding large purchases including homes, cars, stocks, etc. and business or rental property records should be kept longer Keep copies of your tax returns and tax form packages
ADVANTAGES: Conversion - $100,000 AGI and married-filing-separately limitation removed for 2010. Unless a taxpayer elects otherwise, none of the gross income from the conversion is included in income for 2010; half of the income resulting from the conversion is includible in gross income in 2011 and the other half in 2012. Rollovers are not subject to the 10% early distribution tax.
ADVANTAGES CONTINUED: Rollovers and transfers to a Roth account can be made from any qualified retirement account including 401(k) and 403(b) plans. When a nondeductible IRA is converted to a Roth IRA in 2010, only the earnings in the account will be subject to tax. Appreciation is tax-free. NOLs can offset Roth income
CONTRIBUTIONS - Can make contributions after age 70 ½ subject to Roth contribution rules; retired couple could contribute $12,000 each year (including the “over-50 make-up” amount) into Roth accounts. Can make nondeductible contributions to a traditional IRA and convert to a Roth regardless of AGI. The account could grow tax free indefinitely.
DISTRIBUTIONS Tax-free distributions are especially beneficial if your tax rate will be higher when you retire. No required distributions at age 70 ½. Distributions are not included in calculating modified adjusted gross income for taxability of social security benefits. Contributions may be withdrawn any time without tax or penalty. If the taxpayer is at least 59 ½ and has held the Roth account for at least five years, the earnings may be withdrawn tax and penalty-free.
DISADVANTAGES: Contributions to Roth IRAs are never deductible for income tax purposes. Income tax rates could be higher in years of conversions and contributions than in years of distributions. Tax law changes could remove tax-free treatment on earnings.
DISADVANTAGES CONTINUED: Ordinary income tax on the amount rolled over from a traditional IRA to a Roth IRA. If have nondeductible and deductible IRAs, cannot choose to roll over only the nondeductible amounts. The amounts must be prorated based on the balances of each type. A 6% excise tax applies if an individual exceeds the aggregate regular Roth contribution limits.