Healthcare reform seminar 1042012
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Joel Flinchbaugh from Smith Elliott Kearns & Company presented on the tax impacts of the Affordable Care Act. Key points include: the Act will cost $940 billion over 10 years and expand coverage to 32 million Americans; businesses must comply with new reporting and coverage requirements or pay penalties; and individuals will pay higher Medicare taxes, see limits on flexible spending accounts and medical deductions, and face a penalty if uninsurred starting in 2014. The presentation provided details on these new requirements and their implications.
Healthcare reform seminar 1042012
- 1. Presented By: Joel Flinchbaugh, CPA Smith Elliott Kearns & Company LLC
- 2. March 2010, Congress passed the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 Estimated cost - $940 billion over 10 years Expand coverage to 32 million Americans
- 3. Changes for Business ◦ Summary of benefits ◦ W-2 reporting ◦ FSA limits ◦ Medical Loss Ratio rebate ◦ Minimum Essential Coverage Tax Impacts to Individuals ◦ Increased Medicare Taxes ◦ Surtax on Unearned Income ◦ Medical Expense Deduction ◦ Health Insurance Requirement ◦ Premium Assistance Credit
- 5. ◦ Uniform summary of benefits and coverage explanations in plain language ◦ Must be provided at plan renewal on or after 9/23/12 ◦ Revised summary of changes must be given 60 days prior to effective date ◦ Penalty of up to $1,000 per failure to provide
- 6. Cost of employer sponsored coverage must be reported on employee’s W-2 beginning with the 2012 tax year. Employer’s issuing less than 250 W-2’s exempt until 2013 Reporting is for information purposes only Do not have to provide for individuals who would not otherwise get a W-2 (retiree, Cobra) Penalty for failure to comply (up to $250,000 per year)
- 7. Effective 1/1/2013 max election for employee is $2,500 ◦ No previous federal mandated limit Plan documents must be amended by 12/31/2014
- 8. Insurers required to spend so much of premiums on claims-excess refunded to employer Employer must distribute rebates to participants in some way… Distribute to enrollees/improve benefits/reduce future employee contributions Allocation amongst participants must be fair and reasonable Must be used within 3 months of receiving
- 9. In 2014-Employers with 50 or more employees who DO NOT offer health coverage… Must offer insurance to full-time employees or pay a penalty Fine is $2,000 per employee, but first 30 employees are not counted….so with 65 employees penalty is only paid on 35 of them
- 10. Employer with 50 or more employees who DOES offer health coverage…but has at least one Full time employee receiving a tax credit in the exchange will pay the lesser of… $3,000 for each employee receiving a credit or $2,000 for each full time employee An individual with family income up to 400% of federal poverty level is eligible for credit if: The value of employer coverage is less than minimum standard (does not cover 60% of costs) or... The employer requires employee to contribute more than 9.5% of employee’s family income toward coverage
- 12. Current Social Security Taxes: ◦ 6.2% (4.2% in 2012) to a maximum $110,100 for OASDI (old age survivor disability insurance) and ◦ 1.45% on all wages for Medicare (HI) Withheld from wages; employer matches Self-employed pay both shares; receive deduction for ½ of tax on 1040
- 13. 2013—Medicare increases 0.9% for employee only on wages over - $200,000 For joint returns additional tax on joint earned income in excess of $250,000. Self-Employment Tax increases to same amount No increase in Self-Employment deduction May have to remit additional Medicare on 1040
- 14. Also effective in 2013 New 3.8% Surtax on investment income Calculated on the lesser of: 1. Net investment income OR the 2. Excess of taxpayers’ modified AGI over $200,000 ($250,000 for MFJ)
- 15. Interest Dividends Annuities Royalties Rent Capital Gains Passive income from business (limited participation)
- 16. Active business income Qualified retirement plan and IRA distributions Self-employment income Tax-exempt interest Sale of principal residence
- 17. Barack & Michelle, MFJ Salaries $280,000 + net interest income $20,000 = AGI $300,000 Taxed on lesser of: 1. Net investment =$20,000 OR 2. Excess of AGI over $250,000 =$50,000 Result $760= 3.8% surtax on $20,000
- 18. Currently, medical expenses allowable if GREATER than 7.5% of AGI 2013, threshold increases to 10% of AGI Exception-Taxpayer or Spouse is or turns 65 during 2013-2016, 10% threshold is not effective until 2017
- 19. Taxpayer AGI of $100,000 receives no deduction of unreimbursed medical costs until those expenses exceed $7,500 for 2011-2012 2013- medical expenses > $10,000 to be deductible
- 20. 2014 & 2015 phase in period—penalty on individuals who fail to maintain “minimum essential coverage” Penalty: 2014 = greater of 1% of household income OR $95 per uninsured 2015 = greater of 2% of household income OR $325 per uninsured
- 21. In 2016, penalty is greater of: 2.5% of taxpayer’s household income (In excess of filing threshold) OR $695 per uninsured adult plus half the amount per child under 18. Penalty has a cap of $2,085 per household
- 22. Individual must maintain minimum essential health care coverage under: Medicare, Medicaid, TRICARE, veteran’s care or other governmental programs Employer sponsored group plan Grandfathered health plan Any coverage recognized by Department of Health & Human Services
- 23. Health insurance premium exceeds 8% of household income Income below 1040 filing threshold
- 24. Penalty included on 1040 IRS may not impose interest on late payment Not subject to criminal prosecution or assessment IRS may not file a lien or levy property ◦ May reduce refund owed to taxpayer Penalty criticized as unconstitutional ◦ Supreme Court has ruled it is a tax and constitutional Voluntary?????????????
- 25. 2014 - Refundable credit to cover cost of premiums for health insurance purchased through a state health exchange Credit based on income Individual pays plan difference of premium and credit (credit goes directly to exchange) Low income individuals
- 26. There are a lot of changes coming to the tax system as a result of healthcare legislation Clarifications are coming almost continually Keep in contact with your professionals (insurance agent, attorney, CPA) Good luck!!!
- 27. Joel Flinchbaugh, CPA Smith Elliott Kearns & Company Email: jflinchbaugh@sek.com Phone: (717) 243-9104
Editor's Notes
- #27: Challenged in lawsuit brought by several state attorney generals