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Affordable Care Act - Tax Matters

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Chattanooga Presentation

  1. 1. Patient Protection andAffordable Care Act -Tax ProvisionsPaul M. Spizzirri, Esq., J.D., LL.M., M.B.A., M.A.F.M. Hall Booth Smith, P.C. 191 Peachtree Street NE Suite 2900 Atlanta, GA 30303 (404) 954-5000 Main (678) 539-1580 Fax (404) 954-1781 Mobile ps@hallboothsmith.com
  2. 2. Minimum Value• Notice 2012-31 provides information and requested public comment on approach to determining whether an eligible employer-sponsored health plan provides minimum value within the meaning of § 36B(c)(2)(C)(ii) • Under § 36B(c)(2)(C)(ii), a plan fails to provide minimum value if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of such costs” • If the coverage offered by the employer fails to provide minimum value, an employee may be eligible to receive a premium tax credit • See Exhibit 1• In 2014 minimum value will be relevant to eligibility for the premium tax credit and application of employer shared responsibility payment
  3. 3. Information Reporting on HealthInsurance Coverage• Notices 2012-32 and 2012-33 invite comments on development of guidance on annual information reporting under § 6055 for health insurance issuers, government agencies, employers that sponsor self-insured plans and other persons that provide minimum essential coverage of an individual • See Exhibit 2 & 3• Information reporting to be provided by: o Health insurance issuers o Certain employers that sponsor self-insured plans o Government agencies o Certain other parties providing health insurance coverage• Minimum essential coverage is a term defined to include health insurance coverage offered in the individual market (qualified health plan covered through an Affordable Insurance Exchange), an eligible employer-sponsored plan, or government-sponsored coverage such as Medicare, Medicaid, the Children’s Health Insurance Program, TRICARE, or veterans’ health care under chapter 17 or 18 of Title 38 USC § 5000A(f)
  4. 4. Disclosure of ReturnInformationProposed regulations issued and comments solicitedregarding rules for disclosure of return information todetermine eligibility for:• Advance payments of the premium tax credit• Medicaid• Other health insurance affordability programs
  5. 5. Small Business Health Care Tax Credit • Helps small businesses and small tax-exempt organizations afford the cost of covering employees • Targeted for low- and moderate-income workers • Designed to encourage small employers to offer health insurance coverage or maintain coverage • Available generally to small employers paying at least half the cost of single coverage for employees • Form 8941 / Form 990-T Line 44(f); See Exhibits 8 - 11
  6. 6. Small Business Health Care Tax Credit
  7. 7. Health Flexible Spending Arrangements• Effective Jan. 1, 2011, without a prescription, the cost of over-the-counter medicine/drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements (HSAs) – See IR-2010-95 Sept. 3, 2010; Exhibit 12• Even if purchased without a prescription, change does not affect insulin, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles – Id.
  8. 8. Health Flexible SpendingArrangements• Effective Jan. 1, 2011, similar rule applies for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs)• See Exhibits 5 & 6• These changes should be considered before making health benefit decisions• See IRS website: news release IR: 2010-95, Notice 2010-59, Ruling 2010-23, questions and answers• See Exhibit 13 – 16
  9. 9. Health Flexible SpendingArrangementsFSA and HRA participants can continue using debitcards to buy prescribed over-the-counter medicines, ifrequirements are met. See news release IR-2010-128and Notice 2011-5• See Exhibit 17 & 18• Starting in 2013, there are new rules about the amount of contributions to an FSA. See Notice 2012-40 for rules and flexibility for employers; See Exhibit 21
  10. 10. Proposed Regulations Issued onMedical Device Excise Tax• New 2.3% medical device excise tax proposed (IRC §4191) for manufacturers and importers on sales of taxable medical devices starting in 2013• Additional information available in the Medical Device Excise Tax FAQs• See Exhibit 22 - 23
  11. 11. Health Insurance Premium TaxCredit• Beginning in 2014, individuals and families can take this credit to help afford health insurance coverage purchased through an Affordable Insurance Exchange that will operate in every state and the District of Columbia• See Exhibit 24• Credit is refundable so taxpayers who have little or no income tax liability can still benefit
  12. 12. Health Insurance Premium TaxCredit• Credit can be paid in advance to a taxpayers insurance company to help cover premium cost• On May 18, 2012, the IRS issued final regulations providing guidance for: o Individuals who enroll in qualified health plans through Exchanges and claim premium tax credit o Exchanges that make qualified health plans available to individuals and employers
  13. 13. Health Insurance Premium Tax Credit• Exchanges will offer individuals a choice of health plans that meet certain benefit and cost standards• See Exhibit 25 & 26• The Department of Health and Human Services (HHS) administers the requirements for the Exchanges and the health plans they offer
  14. 14. Health Coverage for Older Children• Generally tax-free coverage for employees children under 27 years of age • See Exhibit 27 & 28• Applies to various work place and retiree health plans• Immediately allows employers with cafeteria plans to permit employees to begin making pre-tax contributions to pay for expanded benefit
  15. 15. Health Coverage for Older Children• Also applies to self-employed individuals qualifying for self-employed health insurance deduction on federal income tax return• Notice 2010-38 (Exhibit 28) provides guidance on the tax treatment of health coverage for children up to age 27 under the Affordable Care Act • As amended by the Affordable Care Act, the exclusion from gross income under § 105(b) applies with respect to an employee child’ who has not attained the age of 27 as of the end of the taxable year, including the child of the employee who is not the employee’s dependent within the meaning of § 152(a). • Section 106 provides an exclusion from an employee’s gross income coverage under an employer-provided accident or health plan for an employee, employee’s spouse or dependents as defined in § 152, determined without regard to 152(b)(1), (b)(2) or (d)(1)(B); See Prop. Treas. Reg. § 1.106-1.• There is no indication that Congress intended to provide a broader exclusion in § 105(b) than in § 106, so IRS and Treasury intend to amend the § 106 regulations retroactively to provide that coverage for an employee’s child under age 27 is excluded from gross income.
  16. 16. Excise Tax on Indoor TanningServices• Effective July 1, 2010, 10% excise tax levied on indoor UV tanning services and reported on Form 720, Exhibit 29, Quarterly Federal Excise Tax Return• Does not apply to phototherapy services performed by a licensed medical professional on his or her premises• Exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee• See Exhibit 30
  17. 17. Reporting Employer ProvidedHealth Coverage in Form W-2• Employers required to report cost of coverage under employer-sponsored group health plan on employees Form W-2• See Exhibit 31• Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement• Box 12 with Code DD to identify the amount
  18. 18. Reporting Employer ProvidedHealth Coverage in Form W-2• Amount reported is not taxable and does not affect tax liability since the value of the employer contribution to health coverage is not included in employees income• Reporting is for informational purposes only to show employees the value of their health care benefits
  19. 19. Adoption Credit• Maximum adoption credit of $13,360 per child, up from $13,170 in 2010 and $12,150 in 2009• Credit refundable for tax year 2011 for eligible taxpayers even if they owe no tax for that year• See Exhibit 32• Credit is based on the reasonable and necessary expenses related to a legal adoption, including: o Adoption fees o Court costs o Attorneys fees o Travel expenses
  20. 20. Adoption Credit• Income limits and other special rules apply• Qualified Adoption Expenses reported on Form 8839 – attached as Exhibit 32 with instructions attached as Exhibit 33• Eligible taxpayers must include with 2011 paper tax return, one or more adoption-related documents to avoid delaying their refund• After filing returns, taxpayers may be asked to substantiate any qualified adoption expenses paid• See Exhibit 34 for details
  21. 21. Medicare Shared Savings Program• Establishes a Medicare shared savings program (MSSP) to: o Encourage Accountable Care Organizations (ACOs) to facilitate cooperation among providers o Improve quality of care provided to Medicare beneficiaries o Reduce unnecessary costs
  22. 22. Medicare Shared Savings Program• Notice 2011-20 solicited written comments regarding what additional guidance is needed for tax-exempt organizations participating in the MSSP through an ACO• See Exhibit 35• Above notice addresses the participation of tax- exempt organizations in non-MSSP activities through ACOs
  23. 23. Medicare Shared Savings Program• Final regulations describing rules for Shared Savings Program and accountable care organizations released by Centers for Medicare and Medicaid Services• See Exhibit 36• Fact Sheet 2011-11 confirms: o Notice 2011-20 reflects IRS expectations regarding the Shared Savings Program and ACOs o Provides additional information for charitable organizations that may wish to participate o Attached as Exhibit 37
  24. 24. Qualified Therapeutic Discovery Project Program• Designed to: o provide tax credits and grants to small firms that show significant potential to produce new and cost- saving therapies o support U.S. jobs o Increase U.S. competitiveness.• Exhibit 38• Applicants required to have research projects certified as eligible for the credit or grant.
  25. 25. Qualified Therapeutic DiscoveryProject Program• Submission of certification applications began June 21, 2010• Applications had to be postmarked by July 21, 2010 for consideration• Applications postmarked by July 21, 2010 were reviewed by both Department of Health and Human Services (HHS) and IRS
  26. 26. Qualified Therapeutic DiscoveryProject Program• All applicants were notified by letter dated October 29, 2010 as to approval or rejection• For those applications that were approved, the letter also provided: o amount of the grant to be awarded o tax credit the applicant was eligible to take
  27. 27. Qualified Therapeutic DiscoveryProject Program• IRS published the names of the applicants whose projects were approved as required by law• Listings of results are available by state• Notice 2010-45 (Exhibit 38) – establishes the qualifying therapeutic discovery project program under § 48D of the IRC• Provides procedures under which an eligible taxpayer may apply for certification from the IRS of a qualified investment with respect to a qualifying therapeutic discovery project as eligible for a credit, or for certain taxpayers, a grant under the program• Listed by State at IRS.gov – See Exhibit 39
  28. 28. Group Health Plan Requirements• Number of new requirements for group health plans: o Interim guidance on changes to nondiscrimination requirements for group health plans outlined in Notice 2011-1 o Notice 2011-1 also provides that employers will not be subject to penalties until after additional guidance is issued o TD 9575 and REG-4003810, issued by DOL, HHS and IRS, provide information on summary of benefits and coverage and uniform glossary o See Exhibit 40 & 41/42
  29. 29. Group Health Plan Requirements• Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts• Exhibit 43• Other information on group health plan requirements available on the websites of the Departments of Health and Human Services and Labor and in additional guidance• See also Exhibit 44
  30. 30. Tax-Exempt 501(c)(29) QualifiedNonprofit Health Insurance Issuers• The Affordable Care Act requires the Department of Health and Human Services (HHS) to: o Establish the Consumer Operated and Oriented Plan program (CO-OP program) o Provide for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29)
  31. 31. Tax-Exempt 501(c)(29) QualifiedNonprofit Health Insurance Issuers• IRS Notice 2011-23: o Outlined requirements for tax exemption under section 501(c)(29) o Guidance on the annual filing requirement for qualified nonprofit health insurance issuers that intend to apply for tax exempt status under § 501(c)(29) o Solicited written comments regarding requirements and application process• See Exhibit 45• Revenue Procedure 2012-11 sets out procedures for: o Issuing determination letters o Rulings on exempt status of organizations applying for recognition of exemption under 501(c)(29) o See Exhibit 46 o Temporary Regulations at Exhibit 47
  32. 32. Medicare Part D Coverage Gap“Donut Hole" Rebate• The Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plans coverage gap• This payment is not taxable• This payment is not made by the IRS
  33. 33. Additional Requirements for Tax-Exempt Hospitals• The Act added new requirements for charitable hospitals (Notice 2010-39 and Notice 2011-52)• See Exhibit 48 - 50• On June 22, 2012, the IRS issued proposed regulations providing information on: o Requirements for charitable hospitals relating to financial assistance and emergency medical care policies o Charges for emergency or medically necessary care provided to individuals eligible for financial assistance o Billing and collections o See Exhibit 51
  34. 34. Additional Requirements for Tax-Exempt HospitalsComments on the proposed regulations requested by September 24,2012• Form 990, Schedule H, for tax year 2010: o Revised to gather information on compliance with new requirements and related policies and practices o Made optional for the 2010 tax year to give hospitals time to become familiar with types of information requested by IRS o See Exhibit 52 (Form 990) and Exhibit 53 Instructions
  35. 35. Additional Requirements for Tax-Exempt Hospitals • IRS made revisions to Part V, Section B for tax year 2011• Hospitals required to complete all parts and sections of Schedule H for tax year 2011, with the exception of lines 1-7 of Part V, Section B, relating to community health needs assessments (optional for 2011)• See Exhibit 54• The IRS decided to make Part V.B optional for the 2010 tax year to give hospitals more time to become familiar with the types of information collected related to compliance with § 9007 of the Patient Protection and Affordable Care Act.
  36. 36. Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers• Annual fee payable in 2011 by certain manufacturers and importers of brand name pharmaceuticals• IRS issued temporary regulations and notice of proposed rule making on branded prescription drug fee on August 15, 2011• Temporary regulations describe rules related to the fee• Exhibit 56
  37. 37. Annual Fee on Branded PrescriptionPharmaceutical Manufacturers and Importers • On Nov. 4, 2011, IRS issued Notice 2011-92 providing additional guidance on branded prescription drug fee for 2012
  38. 38. Modification of Section 833Treatment of Certain HealthOrganizations• Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance• See Exhibit 57• IRS Notice 2010-79 provides: o Transitional relief and interim guidance on the computation of an organizations taxpayers Medical Loss Ratio for purposes of section 833 o See Exhibit 58 o The consequences of non-application and changes in accounting method
  39. 39. Modification of Section 833Treatment of Certain HealthOrganizations• Notice 2011-04 provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums• Notice 2011-51 extends transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2010 and the first taxable year beginning after December 31, 2010
  40. 40. Modification of Section 833Treatment of Certain HealthOrganizations• Notice 2012-37 extends transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after December 31, 2012
  41. 41. Medical Loss Ratio (MLR)• Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities• Must meet a medical loss ratio (MLR) standard or provide rebates to their consumers beginning in 2012
  42. 42. Limitation on Deduction forCompensation Paid by Certain HealthInsurance Providers• Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers• See Exhibit 59 & 60• Amendment goes into effect for taxable years beginning after December 31, 2012• Amendment may affect deferred compensation attributable to services performed in a taxable year beginning after December 31, 2009
  43. 43. Employer Shared ResponsibilityPayment• Starting in 2014, certain employers must offer health coverage to full-time employees or a shared responsibility payment may apply• Notice 2012-58: o expands upon and modifies previous guidance o describes safe harbors that employers may use to determine whether certain workers are full-time employees o describes safe harbors that employers may use to establish that coverage is affordable at least through end of 2014 o See Exhibit 64
  44. 44. Employer Shared ResponsibilityPayment• Notice 2012-59 provides related guidance for group health plans on the waiting periods they may apply before starting coverage• See Exhibit 60 • Generally, § 4980(c)(2) is subject to an assessable payment if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction and either: • (1) the employer does not offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; or • (2) the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage that either is unaffordable within the meaning or § 36(B)(c)(2)(C)(i) or does not provide minimum value within the meaning of § 36(B)(c)(2)(C)(ii).• See Exhibit 61 - 65
  45. 45. Patient-Centered OutcomesResearch Institute• Act establishes the Patient-Centered Outcomes Research Institute• By advancing clinical effectiveness research, the Institute will assist patients, clinicians, purchasers and policy-makers in making informed health decisions• Funded by the Patient-Centered Outcomes Research Trust Fund
  46. 46. Patient-Centered OutcomesResearch Institute• Trust fund will be funded in part by fees paid by issuers of health insurance policies and sponsors of self-insured health plans• On April 12, 2012, the IRS and the Treasury Department issued proposed regulations on this fee• The IRS and Treasury requested comment on the proposed regulations by July 16, 2012• See Exhibit 66
  47. 47. Patient Protection andAffordable Care Act -Tax ProvisionsPaul M. Spizzirri, Esq., J.D., LL.M., M.B.A., M.A.F.M. Hall Booth Smith, P.C. 191 Peachtree Street NE Suite 2900 Atlanta, GA 30303 (404) 954-5000 Main (678) 539-1580 Fax (404) 954-1781 Mobile ps@hallboothsmith.com

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