Implications with the Affordable Health Care Act?
July 2012 Supreme Court ruling upholding what's collectively
referred to as the "Affordable Care Act" (ACA) or "Health Care
Act" has resulted in a number of changes to the US tax code.
As such there are a number of tax implications for
businesses. With that in mind, let's take a closer look
at what it might mean for you.
Starting in 2014, US citizens and legal residents not
qualified for Medicare or Medicaid must obtain minimum
essential health care coverage for themselves and their
dependents or pay a tax penalty that varies based on
In 2014, the basic penalty for an individual (no dependents)
is $95, with substantial increases in subsequent
years--$325 in 2015 and $695 in 2016, indexed
for inflation thereafter.
Refundable Tax Credit
Effective in 2014, certain taxpayers will be able to use a
refundable tax credit to offset the cost of health insurance
premiums so that their insurance premium payments do not
exceed a specific percentage of their income. Qualified
individuals are those with incomes between 133 percent and 400
percent of the federal poverty level. A sliding scale based on
family size will be used to determine the amount of the
credit. In addition, married taxpayers must file joint returns
FSA (Flexible Spending Arrangements) contributions are limited
to $2,500 per year starting in 2013 and indexed for inflation
New Rules for HSAs and Archer MSAs
Tax on non-qualified distributions from HSAs and Archer MSAs
that are used to cover the cost of over the counter medicine
without a script will increase to 20 percent starting in 2011.
Medical devices, eyeglasses, contact lenses, copays, and
deductibles are not affected, nor is Insulin even if it is
Medicare Part D
Medicare Part D, the tax deduction for employer provided
retirement prescription drug coverage, will be eliminated in
Increase in AGI Limit for Deductible Medical Expenses
The deduction is currently 7.5 percent of AGI, but next year,
in 2013, that increases to 10 percent of AGI. The 7.5 percent
threshold continues through 2016 for taxpayers aged 65 and
older, including those turning 65 by December 31, 2016.
Health Coverage of Older Children
The cost of employer provided health care coverage for
children (through age 26) claimed as dependents on tax returns
is excluded from gross income.
Medicare Tax Increases for High Income Earners
Starting in 2013, there will be an additional 0.9 percent
Medicare tax on wages above $200,000 for individuals ($250,000
married filing jointly).
Also starting in 2013, there is a new Medicare tax of 3.8
percent on investment (unearned) income for single taxpayers
with modified adjusted gross income (MAGI) over $200,000
($250,00 joint filers). Investment income includes dividends,
interest, rents, royalties, gains from the disposition of
property, and certain passive activity income. Estates, trusts
and self-employed individuals are all liable for the new tax.
Exemptions are available for business owners and income from
certain retirement accounts, such as pensions, IRAs, 401(a),
403(b), and 457(b) plans, is exempt.
Small Business Health Care Tax Credit
Small businesses and tax-exempt organization that employ 25 or
fewer workers with average incomes of $50,000 or less, and
that pay at least half of the premiums for employee health
insurance coverage are eligible for the Small Business Health
Care Tax Credit.
For tax years 2010 through 2013, the maximum credit is 35
percent for small business employers and 25 percent for small
tax-exempt employers such as charities. An enhanced version of
the credit will be effective beginning Jan. 1, 2014. In
general, on Jan. 1, 2014, the rate will increase to 50 percent
and 35 percent, respectively.
Additional Tax on Businesses Not Offering Minimum essential
Effective in 2014 an additional tax will be levied on
businesses with 50 or more full-time equivalent (FTE)
employees that do not offer minimum essential coverage.
Employers with fewer than 50 FTE employees are exempt from the
Excise Tax on High Cost Employer-Sponsored Insurance
Effective in 2018, a 40 percent excise tax indexed for
inflation will be imposed on employers with insurance plans
where the annual premium exceeds $10,200 (individual) or
$27,500 (family). For retirees age 55 and older, the premium
levels are higher, $11,850 for individuals and $30,950 for
Excise Tax on Medical Devices
Effective January 1, 2014, a 2.3 percent tax will be levied on
manufacturers and importers on the sale of certain medical
Indoor Tanning Services
A 10 percent excise tax on indoor tanning services went into
effect on July 1, 2010. The tax doesn't apply to phototherapy
services performed by a licensed medical professional on his
or her premises. There's also an exception for certain
physical fitness facilities that offer tanning as an
incidental service to members without a separately
If you need assistance navigating the complexities of the new
health care act, don't hesitate to call us. We're here to
If you have any questions about how the Affordable Care Act
will effect you or your business, please give me a call at
can help guide you in the right direction.
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