ACA, Health Insurance, and Taxes--A Full-Plate Discussion for Small Businesses
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A recent “Lunch & Learn,” jointly presented by PYA and Careadigm, provided businesses with answers to often-asked questions about healthcare reform, the Affordable Care Act (ACA), and the effects on health insurance coverage and taxes.
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ACA, Health Insurance, and Taxes--A Full-Plate Discussion for Small Businesses
- 1. Page 0September 5, 2013 Taxes Under The Affordable Care Act Taxes Under The Affordable Care Act Presented by: Heather L. Martin, CPA PYA Senior Manager
- 2. Page 1September 5, 2013 Taxes Under The Affordable Care Act For Self-employed Taxpayers • Individual shared responsibility provisions • Individual insurance marketplaces in place by January 1, 2014 • Coverage through Medicaid expansion • New Medicare assessment on net investment income/net earnings
- 3. Page 2September 5, 2013 Taxes Under The Affordable Care Act For Employers with Less than 50 Employees • Small business health insurance credit (fewer than 25 employees only) • Small Business Health Options Program • Employer notice to employees of new health insurance marketplace • Summary of benefits and coverage disclosure rules • Medical loss ratio rebates
- 4. Page 3September 5, 2013 Taxes Under The Affordable Care Act For Employers with Less than 50 Employees • Limits on FSA contributions • Additional Medicare withholding on wages • New Medicare assessment on NII • 90-day maximum waiting period • Transitional reinsurance program fees • Workplace wellness programs • Health insurance coverage reporting requirements
- 5. Page 4September 5, 2013 Taxes Under The Affordable Care Act Our Agenda – Taxes Old and New • Additional tax on wages/net investment income • Individual tax changes • Employer shared responsibility in detail • Small employer health insurance credit • Changes to health insurance plans • Premium tax credit • Payroll considerations • Return disclosure
- 6. Page 5September 5, 2013 Taxes Under The Affordable Care Act Additional .9% Tax on Wages • For wages over $200,000 for single taxpayers or $250,000 for MFJ, an additional .9% tax applies. • Employers are required to withhold this tax on any individual’s wages over $200,000 even if the tax will not ultimately be due. • No employer match is assessed on this tax and no notification to the employee is required.
- 7. Page 6September 5, 2013 Taxes Under The Affordable Care Act Example • Husband and wife file MFJ. Husband’s wages $250k. Wife’s wages $150k. Husband has add’l withholding on $50k (or $450). Wife has no add’l withholding. Tax assessed on $150k (over the $250k MFJ threshold) (or $1,350). • Choice to increase W-4 withholding or pay with income tax filing (but subject to estimated tax requirements). • Employer subject to penalties if not withheld and possibly tax if not remitted by employee.
- 8. Page 7September 5, 2013 Taxes Under The Affordable Care Act Additional 3.8% Tax on Net Investment Income (NII) • Tax calculated on the lesser of NII or the excess of MAGI over the threshold amount ($250k MFJ, $200k single). • Threshold amounts aren’t indexed for inflation (i.e. more people over time will pay) • NII includes non-business income from interest, dividends, rents, net gains, and other passive income.
- 9. Page 8September 5, 2013 Taxes Under The Affordable Care Act 3.8% NII Tax Continued • Deductions apply that are allocable to NII. • Tax subject to estimated tax requirements • Rents from an active trade or business aren’t subject to the NII tax. However rents normally don’t rise to “active” level of activity. – Consider real estate professional tests. – Consider grouping of activities.
- 10. Page 9September 5, 2013 Taxes Under The Affordable Care Act Net Gain Comments • Net gains include sales of stocks, bonds, and mutual funds, capital gain distributions, and gain from the sale of real estate. • Net gains cannot be reduced below zero in any year (i.e. $3,000 capital loss doesn’t apply as compared to regular income tax). • If property disposed of is held in a trade or business to which the NIIT doesn’t apply, NII doesn’t include gain attributable to that property.
- 11. Page 10September 5, 2013 Taxes Under The Affordable Care Act Individual Tax Changes • New 39.6% tax bracket – Taxable income over $450k MFJ and $400k single – Previously at 35% tax rate • Increase in capital gains rate to 20% (from 15%) for income that would otherwise be taxed at 39.6% – NII would probably also apply – 23.8% total tax rate overall possible when previous 15% • Phase-outs of exemptions and itemized deductions (again)
- 12. Page 11September 5, 2013 Taxes Under The Affordable Care Act Employer Shared Responsibility • Responsibility begins at 50 or more full-time equivalent (FTE) employees. • Full-time employee – average of at least 30 hours per week (e.g. 2 part-time 15-hour-per-week employees = 1 FTE employee) • Aggregate affiliated employers with common ownership or those part of controlled group • Generally, look to the prior calendar year for employee count.
- 13. Page 12September 5, 2013 Taxes Under The Affordable Care Act Employer Shared Responsibility Continued • Penalty assessed if at least 1 employee receives a credit for exchange coverage. • If employer offers coverage, penalty assessed equals the lesser of: – Number of its full-time employees minus 30 multiplied by $2,000. – Number of full-time employees who receive credits for exchange coverage multiplied by $3,000
- 14. Page 13September 5, 2013 Taxes Under The Affordable Care Act Employer Shared Responsibility Continued • If employer does not offer coverage, penalty assessed equals the number of full-time employees minus 30 multiplied by $2,000 • Employers not required to offer coverage to part-time employees • Reporting to monitor health plans offered to employees – required in 2015.
- 15. Page 14September 5, 2013 Taxes Under The Affordable Care Act Small Employer Health Insurance Credit • Originally applied for 2010-2013 at 35% • Credit available if 25 or fewer employees and average annual wages does not exceed $50,000, and employer pays at least 50% of premiums. • Full credit if 10 or fewer employees with wages no more than $25,000 • Owners, self-employed individuals excluded • Changes in 2014 related to exchanges, credit amount (50%), and availability period (2 years)
- 16. Page 15September 5, 2013 Taxes Under The Affordable Care Act Changes to Health Insurance Plans • Age of dependents on plan • Other group health plan requirements • PCORI fee • Shared Individual Responsibility - 2014 • Shared Employer Responsibility – Reporting required in 2015 – Reporting recommended for 2014
- 17. Page 16September 5, 2013 Taxes Under The Affordable Care Act Premium Tax Credits • Subsidizes the cost to families of health insurance purchased through an Exchange. • Available on a sliding scale basis for families between 100% and 400% of the poverty line. • Based on the percentage of income that the cost of premiums represent (2% to 9.5%) • Benchmark plan - applicable second lowest cost silver plan
- 18. Page 17September 5, 2013 Taxes Under The Affordable Care Act Payroll Considerations • W-2 compliance – “Aggregate cost of employer-sponsored health coverage” – If 250 or more W-2’s for the prior year, insurance reporting is required for the current year • Health FSA contribution limitation – $2,500 in 2013 – Adjusted for inflation thereafter
- 19. Page 18September 5, 2013 Taxes Under The Affordable Care Act Return Disclosure Forthcoming • Upon request from HHS, IRS must disclose return information of any taxpayer whose income is relevant in determining the following: – Premium tax credit – Eligibility for state programs • Items that could be disclosed include filing status, number of dependents, and AGI.
- 20. Page 19September 5, 2013 Taxes Under The Affordable Care Act Items to Remember…
- 21. Page 20September 5, 2013 Taxes Under The Affordable Care Act For Employers with 50 or more Employees • W-2 reporting of aggregate health care costs • Employer shared responsibility provisions • Employer notice to employees of new health insurance marketplace • Health insurance coverage reporting requirements • Summary of Benefits and Coverage Disclosure rules
- 22. Page 21September 5, 2013 Taxes Under The Affordable Care Act For Employers with 50 or more Employees • Medical loss ratio rebates • Limits on FSA contributions • Additional Medicare withholding on wages • New Medicare assessment on NII • 90-day maximum waiting period • Transitional reinsurance programs fees • Workplace wellness programs
- 23. Page 22September 5, 2013 Taxes Under The Affordable Care Act Taxes Under Affordable Care Act Presented by: Heather L. Martin, CPA hmartin@pyapc.com
Hinweis der Redaktion
- Strategies – invest in tax-exempt bonds, dividend strategy to lower, use capital losses to offset gains, satisfy the real estate professional test, consider LKE or installment sales, revisit entity choice.
- REP for a particular year if more than half of the personal services the taxpayer performs during that year are performed in real property trades or businesses in which the taxpayer materially participates and the taxpayer performs more than 750 hours of services during that year in real property trades or businesses in which he materially participates. Electing to treat all of a taxpayer’s rental real estate activities as a single activity may make it easier to meet the material participation requirement, resulting in treatment of the rental real estate activities as nonpassive.Material participation: Over 500 hours/yearSubstantially all participation is by TP (including nonowners) for yearOver 100 hours/year and no other individual participates moreSignificant participation activity – over 100 hours/year and over 500 hours/year in all significant participation activities (business, other than rental, that TP participates in over 100 hours/year but does not qualify as materially participating under any other test here)If materially participates for any 5 years during the 10 immediately preceding yearsFor PSC, TP materially participated for any 3 tax years preceding the current tax yearFacts and circumstances test – regular, continuous, substantial involvement. If less than 100 hours/year, this test does not apply. Management activities are not considered if someone else does (whether paid or not)
- Medical expenses threshold – 10% rather than 7.5%, except for 65 and older exempt from 2013 – 2016 (either spouse).
- Individual - $95 for 2014, $325 for 2015, $695 2016, adjusted for inflation thereafterEmployer – notified by the IRS if one of its employees is determined to be eligible for a PTC or cost-sharing reduction because the employer either does not provide minimal essential coverage through an eligible employer-sponsored plan or does offer coverage but at least one full-time employee of the applicable large employer member is certified to the applicable large employer member as having enrolled for that month in a qualified health plan for which health coverage assistance is allowed or paid with respect to the employee. Information reporting voluntary for 2014, but employers are urged to comply to make for smooth transition in 2015.Dependents – plan years beginning on or after 9/23/10, dependent coverage available for children who have not yet reached the age of 26.90 day waiting period limitation, nondiscriminations requirements, summary of benefits and coverage information.Patient-centered outcomes research institute fee – Form 720 Federal Excise tax return. PCORI – to assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing comparative clinical effectiveness research. Fees to be paid by issuers of health insurance policies and sponsors of self-insured health plans. Fees based on the average number of lives covered under the policy or plan. HRA is such a plan.Average impact of 2014 reform changes on insured medical premiums
- 100% - 1 size - $11,490, 400% $45,9604 size – 100% $23,550, 400% $94,200Higher % of FPL, higher percentage can be premiums. So if income is 400% of FPL, your premiums would be max of 9.5% of income or credits could apply to you. $94,200 income or $8,949 of premiums.
- See listing of what qualifies as health insurance to report on W-2.
- See listing of what qualifies as health insurance to report on W-2.
- Transitional relief for those with fewer than 250 employees.