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Recently, two pieces of legislation, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law. Together, these pieces of legislation make the most significant reform to health care in the United States since the enactment of Medicare. The Congressional Budget Office estimates that by 2019, approximately 32 million currently uninsured Americans will have health insurance, at a cost of about $940 billion. A major component of the reform legislation is the creation of state-based American Health Benefit Exchanges and Small Business Health Options Program Exchanges to provide health insurance for low-income individuals and small businesses. The following is a brief description of some of the most important provisions of the health care reform legislation.
For individuals

• U.S. citizens and legal residents will be required to have health insurance by 2014, with some exceptions. Those without insurance will face a tax penalty of as much as 2.5% of taxable income.
• Existing employer-sponsored health insurance plans will be allowed to remain essentially the same except the plans will be required to extend dependent coverage to qualifying children through age 26, lifetime limits (and eventually, annual dollar limits) on coverage must be eliminated, waiting periods for coverage cannot extend beyond 90 days, and insurers will not be able to deny coverage or charge higher premiums to people based on their health status and gender.
• Medicaid eligibility will be expanded to include individuals under age 65 whose income is less than 133% of the Federal Poverty Level.
• For families with incomes up to 400% of the Federal Poverty Level, tax credits and subsidies will be available to purchase health insurance through state-run exchanges, and to offset out-of-pocket costs.
• Contributions to a health flexible spending account will be limited to $2,500 per year. Reimbursements from health FSAs and HRAs for over-the-counter drugs will be restricted, and tax-free reimbursements from HSAs and Archer MSAs for over-the-counter drugs will not be allowed, while the tax on HSAs and Archer MSAs increases for distributions not used for qualified medical expenses.
• A rebate of $250 will be available to Medicare Part D (drug coverage) beneficiaries who reach the coverage gap (donut hole) and the coinsurance rate for costs within this gap are gradually reduced to 25%.
• Adults with pre-existing conditions will be able to purchase coverage from temporary high-risk pools until 2014, when coverage cannot otherwise be denied for pre-existing conditions.
• A national program will be established to provide limited reimbursement for long-term care expenses for individuals who participate by contributing to the program’s cost through voluntary payroll deductions.

 

For employers

• Employers with 50 or more employees that do not offer health insurance coverage will generally have to pay a premium tax of up to $2,000 per full-time employee.
• Employers with more than 200 employees must automatically enroll employees in health insurance plans from which employees may opt out.
• Employers providing health insurance must offer a voucher to qualifying employees to purchase insurance through an exchange.
• Qualifying small employers may receive a tax credit for providing health insurance to employees.

 

Tax changes

• The threshold for itemized deductions for qualified medical expenses will be increased from 7.5% of adjusted gross income (AGI) to 10% of AGI, though a temporary exception will be maintained for those 65 and older.
• The tax for Medicare Part A (hospitalization coverage) is increased 0.9% for individuals with earnings exceeding $200,000, and for couples with joint earnings greater than $250,000. Also, high-income taxpayers will be subject to a surtax of 3.8% on unearned income, such as capital gains, dividends, annuities, and rental income.
• The law imposes a 10% tax on the amount paid for indoor tanning services.
• Some of these provisions are effective immediately while others will be implemented over the next several years. Consult with your financial professional to see how these laws may affect you.

Courtesy of the American Institute of Certified Public Accountants

                                                                                                April 2010

Hiring the Unemployed

2010 Healthcare Act Provisions for 2010

Extension of Business Expensing Election

With all the news coverage of the passage of the Health Care Act, another law was recently signed named the “Hiring Incentives to Restore Employment Act of 2010”. The benefit to businesses from this Act is the ability to save the cost of the employer’s matching payment of the 6.2% Social Security payroll tax and up-to-$1,000 tax credit for businesses that hire unemployed workers.

Payroll tax holiday for employers who hire unemployed workers.

To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010.

Up-to-$1,000 credit for employers who hire unemployed workers.

As an additional incentive, for any qualifying worker hired under this act that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.

Hiring New Employees

NOTE: The act applies to eligible workers that were hired after Feb. 3, 2010 but only wages paid after March 18. Some additional features of the new hiring incentive include:

• The tax benefit of the new incentive is immediate. It puts money into a business’ cash flow immediately.
• The tax benefit generally applies only to private-sector employment, including nonprofit organizations.
• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
• An employer can’t claim the new tax breaks for hiring family members.  Family members are defined as:

Child or descendant of a child, brother, sister, stepbrother or stepsister

Father, mother or ancestor of either, a stepfather or stepmother

Son or daughter of a brother or sister of the taxpayer

Brother or sister of the father or mother of the taxpayer

Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or       sister-in-law.

Also, any individual that lived in your home during the tax year.

          Finally, anyone that is a 50% or more owner of a corporation is disqualified.

• A worker who replaces another employee who performed the same job for the employer isn’t eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn’t been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
• The payroll tax holiday doesn’t apply with respect to wages paid during the first calendar quarter of 2010, but the amount is applied against the tax imposed on the employer for the second calendar quarter of 2010.
• This credit also applies to workers that have been laid off but now recalled assuming they meet all the eligibility requirements.

Retaining New Hires for 52 Weeks

• The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period.

For example, an employer that hires an eligible individual will save $62.00 (the FICA match) for every $1,000 in wages paid.  In addition, if the employee remains on the payroll for 52 continuous weeks, a $1,000 tax credit is available.   But remember, to qualify, all of the conditions listed above must be met.

Extension of enhanced small business expensing.

The new law also gives a one-year extension for qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it by depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009.  This can be a significant tax savings opportunity.

Tax Provisions in the Health Care Act

This legislation contains many provisions; however, the vast majority DO NOT take effect in 2010.  The few that are scheduled for this year have not all been given an effective date.  A sample of those that have broader application include:

Follow this link to the IRS Web Site for more information: http://www.irs.gov/newsroom/article/0,,id=220839,00.html

Small Business Tax Credit

• The act provides tax credits for small businesses and individuals designed to increase levels of health insurance coverage. 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 non-elective contributions the business makes on behalf of their employees for insurance premiums. 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 and 2% S corporation shareholders are not included in the definition of employee.  This credit is available for tax years beginning after Dec. 31, 2009.

• Group plans (except for self-funded plans) will be prohibited from varying eligibility rules for FTEs based on salary that have the effect of discriminating in favor of higher wage employees within six months of enactment.
• All group and individual plans (except for self-funded plans), within six months of enactment, will have to cover dependents up to age 26 under current law.