The Patient
Protection and Affordable Care Act (H.R. 3590), passed
by Congress on Sunday, contains numerous tax provisions.
We have sorted most
of the tax provisions in the law by the year in which
they become effective.
2010
Small
Business Tax Credit
The act
provides tax credits for small businesses and
individuals designed to increase levels of health
insurance coverage, as part of the IRC § 38 general
business credit. 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 nonelective
contributions the business makes on behalf of their
employees for insurance premiums (new IRC § 45R).
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 under
the section 416 top-heavy plan rules and 2% S
corporation shareholders are not included in the
definition of employee, but leased employees are
counted.
Tax on
Indoor Tanning Services
The act
imposes a 10% tax on amounts paid for indoor tanning
services (new IRC § 5000B). Like a sales tax, the
tax will be collected from the person tanning when
payment for the tanning services is made. The
provision applies to services performed on or after
July 1, 2010.
2011
Tax on
HSA Distributions
The
additional tax on distributions from a health
savings account (HSA) or an Archer medical savings
account (MSA) that are not used for qualified
medical expenses is increased to 20% of the
disbursed amount, effective for disbursements made
during tax years starting after Dec. 31, 2010.
SIMPLE
Cafeteria Plans for Small Business
The act
establishes a SIMPLE cafeteria plan for small
businesses. Under the provision, an eligible small
employer is provided with a safe harbor from the
nondiscrimination requirements for cafeteria plans
as well as from the nondiscrimination requirements
for specified qualified benefits offered under a
cafeteria plan, including group term life insurance,
benefits under a self insured medical expense
reimbursement plan, and benefits under a dependent
care assistance program. Under the safe harbor, a
cafeteria plan and the specified qualified benefits
are treated as meeting the specified
nondiscrimination rules if the cafeteria plan
satisfies minimum eligibility and participation
requirements and minimum contribution requirements.
Information Reporting
The act
requires employers to disclose on each employee’s
annual Form W-2 the value of the employee’s health
insurance coverage sponsored by the employer.
2012
Expansion of Adoption Credit, Adoption Assistance
Programs
For 2010,
the maximum adoption credit is increased to $13,170
per eligible child (a $1,000 increase). This
increase applies to both non-special needs adoptions
and special needs adoptions. Also, the adoption
credit is made refundable. The new dollar limit and
phase-out of the adoption credit are adjusted for
inflation in tax years beginning after Dec. 31,
2010. Also, the scheduled sunset of EGTRRA
provisions relating to the adoption credit is
delayed for one year (i.e., the sunset becomes
effective for tax years beginning after Dec. 31,
2011).
For
adoption assistance programs, the maximum exclusion
is increased to $13,170 per eligible child (a $1,000
increase). The new dollar limit and income
limitations of the employer-provided adoption
assistance exclusion are adjusted for inflation in
tax years beginning after Dec. 31, 2010. The EGTRRA
sunset of provisions relating to adoption assistance
programs is also delayed for one year (i.e., the
sunset becomes effective for tax years beginning
after Dec. 31, 2011).
Information Reporting
The act
requires businesses to file an information return
(e.g., a Form 1099) for all payments aggregating
$600 or more in a calendar year to a single payee,
including corporations (other than a payee that is a
tax-exempt corporation).
2013
Additional Hospital Insurance Tax on High-Income
Taxpayers
Under the
act, the employee portion of the hospital insurance
tax part of FICA, currently amounting to 1.45% of
covered wages, is increased by 0.9% on wages that
exceed a threshold amount. The additional tax is
imposed on the combined wages of both the taxpayer
and the taxpayer’s spouse, in the case of a joint
return. The threshold amount is $250,000 in the case
of a joint return or surviving spouse, $125,000 in
the case of a married individual filing a separate
return, and $200,000 in any other case.
For
self-employed taxpayers, the same additional
hospital insurance tax applies to the hospital
insurance portion of SECA tax on self-employment
income in excess of the threshold amount.
Fees on
Health Plans
Under new
section 4375, a fee is imposed on each specified
health insurance policy. The fee is equal to two
dollars (one dollar in the case of policy years
ending during fiscal year 2013) multiplied by the
average number of lives covered under the policy.
The issuer of the policy is liable for payment of
the fee.
For any
policy year beginning after September 30, 2014, the
dollar amount is equal to the sum of: (1) the dollar
amount for policy years ending in the preceding
fiscal year, plus (2) an amount equal to the product
of (A) the dollar amount for policy years ending in
the preceding fiscal year, multiplied by (B) the
percentage increase in the projected per capita
amount of National Health Expenditures, as most
recently published by the Secretary before the
beginning of the fiscal year.
The issuer
of the policy is liable for payment of the fee.
In the
case of an applicable self-insured health plan, new
IRC § 4376 imposes a fee equal to two dollars (one
dollar in the case of policy years ending during
fiscal year 2013) multiplied by the average number
of lives covered under the plan. For any policy year
beginning after September 30, 2014, the dollar
amount is equal to the sum of: (1) the dollar amount
for policy years ending in the preceding fiscal
year, plus (2) an amount equal to the product of (A)
the dollar amount for policy years ending in the
preceding fiscal year, multiplied by (B) the
percentage increase in the projected per capita
amount of National Health Expenditures, as most
recently published by the Secretary before the
beginning of the fiscal year. The plan sponsor is
liable for payment of the fee.
Flexible Spending Account
The act
mandates that the maximum amount available for
reimbursement of incurred medical expenses of an
employee, the employee’s dependents, and any other
eligible beneficiaries with respect to the employee,
under a health flexible spending account for a plan
year (or other 12-month coverage period) must not
exceed $2,500.
2014
Excise
Tax on Uninsured Individuals
The act
creates new IRC § 5000A, which requires U.S.
citizens and legal residents to maintain minimum
amounts of health insurance coverage. Minimum
essential coverage includes various
government-sponsored programs, eligible
employer-sponsored plans, plans in the individual
market, grandfathered group health plans and other
coverage as recognized by the Secretary of Health
and Human Services in coordination with the
Secretary of the Treasury. This requirement would
not apply to individuals who are incarcerated, not
legally present in the United States or maintain
religious exemptions.
Individuals who fail to maintain minimum essential
coverage will be subject to a penalty equal to $750.
The fee for an uninsured individual under age 18 is
one-half of the adult fee. The total household
penalty may not exceed 300% of the per-adult
penalty.
The
penalty amount will be phased in over the years
2014–2016 and will be indexed for inflation after
2016. However, liens and seizures are not authorized
to enforce this penalty, and noncompliance will not
be subject to criminal penalties.
Premium
Assistance Credit
The act
provides for refundable tax credits that eligible
taxpayers can use to help cover the cost of health
insurance premiums for individuals and families who
purchase health insurance through a state health
benefit exchange (which each state is required to
establish under section 1311 of the act). Under new
IRS § 36B, an eligible individual will enroll in a
plan offered through an exchange and report his or
her income to the exchange. Based on the information
provided to the exchange and his or her income, the
individual will receive a premium assistance credit.
Treasury will pay the premium assistance credit
amount directly to the insurance plan in which the
individual is enrolled. The individual will then pay
to the plan in which he or she is enrolled the
dollar difference between the premium tax credit
amount and the total premium charged for the plan.
Eligibility for the premium assistance credit is
based on the individual’s income for the tax year
ending two years prior to the enrollment period. The
premium assistance credit is available for
individuals (single or joint filers) with household
incomes between 100% and 400% of the federal poverty
level (for the family size involved) who do not
received health insurance through an employer or a
spouse’s employer. The credit amount is determined
by the Secretary of Health and Human Services, based
on the percentage of income the cost of premiums
represents, rising from 2% of income for those at
100% of federal poverty level for the family size
involved to 9.5% of income for those at 400% of
federal poverty level for the family size involved.
Tax-Exempt Health Insurers
The act
provides for a program administered by the
Department of Health and Human Services that will
foster the creation of qualified nonprofit health
insurance issuers to offer health insurance.
Insurers receiving federal grants or loans under the
program would be exempt from federal tax (under IRC
§ 501(a)) for periods when the insurer complies with
the terms of the program.
Reporting Requirements
The act
requires insurers (including employers who
self-insure) that provide minimum essential coverage
to any individual during a calendar year to report
certain health insurance coverage information to
both the covered individual and to the IRS (new IRC
§ 6055).
The
information required to be reported includes: (1)
the name, address, and taxpayer identification
number of the primary insured, and the name and
taxpayer identification number of each other
individual obtaining coverage under the policy; (2)
the dates during which the individual was covered
under the policy during the calendar year; (3)
whether the coverage is a qualified health plan
offered through an exchange; (4) the amount of any
premium tax credit or cost-sharing reduction
received by the individual with respect to such
coverage; and (5) such other information as the
Secretary may require.
Medical
Care Itemized Deduction Threshold
The
threshold for the itemized deduction for
unreimbursed medical expenses is increased from 7.5%
of AGI to 10% of AGI for regular income tax
purposes. This is effective for tax years beginning
after Dec. 31, 2012, except that for 2013, 2014,
2015 and 2016, if either the taxpayer or the
taxpayer’s spouse turns 65 before the end of the tax
year, the increased threshold does not apply and the
threshold remains at 7.5% of AGI.
Cafeteria Plans
The act
makes premiums for coverage under a qualified health
plan offered through an exchange a qualified benefit
under a cafeteria plan. This provision applies only
to cafeteria plans established by a small employer
that elects to make all its full-time employees
eligible for one or more qualified plans offered in
the small group market through an exchange.
Employer Responsibility
Under new
IRC § 4980H, an “applicable large employer” that
does not offer coverage for all its full-time
employees, offers minimum essential coverage that is
unaffordable, or offers minimum essential coverage
that consists of a plan under which the plan’s share
of the total allowed cost of benefits is less than
60%, is required to pay a penalty if any full-time
employee is certified to the employer as having
purchased health insurance through a state exchange
with respect to which a tax credit or cost-sharing
reduction is allowed or paid to the employee.
An
employer is an applicable large employer with
respect to any calendar year if it employed an
average of at least 50 full-time employees during
the preceding calendar year.
An
applicable large employer who fails to offer its
full-time employees and their dependents the
opportunity to enroll in minimum essential coverage
under an employer-sponsored plan for any month is
subject to a penalty if at least one of its
full-time employees is certified to the employer as
having enrolled in health insurance coverage
purchased through a state exchange with respect to
which a premium tax credit or cost-sharing reduction
is allowed or paid to such employee or employees.
The penalty for any month is an excise tax equal to
the number of full-time employees over a 30-employee
threshold during the applicable month (regardless of
how many employees are receiving a premium tax
credit or cost-sharing reduction) multiplied by
one-twelfth of $2,000.
An
applicable large employer who offers, for any month,
its full-time employees and their dependents the
opportunity to enroll in minimum essential coverage
under an employer-sponsored plan is subject to a
penalty if any full-time employee is certified to
the employer as having enrolled in health insurance
coverage purchased through a state exchange with
respect to which a premium tax credit or
cost-sharing reduction is allowed or paid to such
employee or employees.
2018
Excise
Tax on High-Cost Employer Plans
New IRC §
4980I imposes an excise tax on insurers if the
aggregate value of employer-sponsored health
insurance coverage for an employee (including, for
purposes of the provision, any former employee,
surviving spouse and any other primary insured
individual) exceeds a threshold amount. The tax is
equal to 40% of the aggregate value that exceeds the
threshold amount. For 2018, the threshold amount is
$10,200 for individual coverage and $27,500 for
family coverage, multiplied by the health cost
adjustment percentage (as defined in the act) and
increased by the age and gender adjusted excess
premium amount (as defined in the act).
