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Personal Finance
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In late March 2010, President Obama signed into law the new health care legislation. The legislation will affect virtually every individual in one way or another and will significantly impact the preparation of tax returns in the future. The provisions take effect over a period of years and are categorized by the year they become effective. Some of the provisions include additional taxes to offset the cost of the health care benefits included in the legislation for lower-income individuals.
The following is an overview of the provisions that apply to individual taxpayers and small businesses.
2009
o Student Loan Forgiveness for Health Professionals – Excludes student loan debt forgiveness from income for certain medical professionals who work in health professional shortage areas.
o Investment Credit for Therapeutic Discovery Projects – A small company investment tax credit for expenses incurred for qualified investments in qualifying therapeutic discovery projects.
2010
o Insurance for Uninsured Americans with Pre-Existing Conditions – A Pre-Existing Condition Insurance Plan will provide new coverage options to individuals who have been uninsured for at least six months because of a pre-existing condition.
o Expanding Coverage for Early Retirees – A program that provides reimbursement to sponsors of participating employment-based plans for a portion of the cost of health benefits for early retirees and their spouses, surviving spouses, and dependents.
o Providing Free Preventive Care – New plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, co-pay or coinsurance.
o Pre-Existing Condition Exclusions for Children Under Age 19 – For new plans and existing group plans, the new law includes rules to prevent insurance companies from denying coverage to children under the age of 19 due to a pre-existing condition.
o Elimination of Arbitrary Rescission of Coverage – Insurance companies may no longer retroactively cancel policies because of an "unintentional" mistake on paperwork.
o Lifetime Limits are Phased Out – Effective for all policies issued after September 23, 2010 and those renewing after this date, there can no longer be lifetime limits placed on health care plans.
o Annual Dollar Limits – There is a phase out of annual dollar expenditure limits on health plans over the next three years until 2014 when the Affordable Care Act bans them for most plans.
o Tanning Services Excise Tax – A new 10% excise tax is imposed on the amount paid for any indoor tanning service.
o Excludable Medical Reimbursements for Older Children – An income exclusion for reimbursements of medical care expenses by an employer-provided accident or health plan is extended to any child of an employee who hasn't attained age 27.
o Self-Employed Health Insurance Deduction – Self-employed individuals may include in their tax-deductible health insurance children who have not attained age 27.
o Tax Credits for Small Employers Offering Health Coverage – Provides a tax credit for an eligible small employer for non-elective contributions to purchase health insurance for its employees.
2011
o Employer W-2 Reporting Responsibilities – Employers will be required to disclose the aggregate cost of employer-sponsored health coverage to their employees on Form W-2.
o Increased Tax on Nonqualifying HSA or Archer MSA Distributions – The additional tax for making non-medical withdrawals from Health Savings Plans and Archer MSA plans is increased to 20%.
o Over-the-Counter Medication Restriction for Employer Plans – Over-the-counter medications will no longer qualify for reimbursement.
o Small Employer Simple Cafeteria Plans – Small employers may provide employees with a "simple cafeteria plan."
2012
O Information Reporting Required for Payments to Corporations – Businesses that pay any amount greater than $600 during the year to non-tax-exempt corporate providers of property and services will have to file an information report with each provider and with IRS.
2013
o Additional Hospital Insurance Tax for High-Income Taxpayers – The Hospital Insurance (HI) tax rate (currently at 1.45%) would be increased by 0.9 percentage points on incomes over a threshold.
o Surtax on Unearned Income for High-Income Taxpayers – A 3.8% surtax is imposed on net investment income of high-income individuals, estates, and trusts.
o Employer Health FLEX-Spending Plan Contributions Limited – Medical reimbursements from flexible spending plans is limited to $2,500.
o Medical Itemized Deductions Limited – The AGI threshold percentage for claiming itemized medical expenses is increased from 7.5% to 10%.
o Compensation Deduction Limit for Health Insurance Issuers – Limits companies' deduction for certain employees' compensation.
2014
o Mandatory Heath Insurance Overview – Many of the provisions of the Health Care Legislation are linked to the mandate that everyone becomes insured. The chart provides an overview of how these provisions interact to achieve that goal.
o American Health Benefit Exchanges – By 2014, each state must establish an exchange to help individuals and small employers obtain coverage.
o Penalty For Not Being Insured – Non-exempt U.S. citizens and legal resident taxpayers will be penalized for failing to maintain at the least the minimum essential health coverage.
o Premium Assistance Credit – Tax credits will be available for low-income individuals who obtain health insurance coverage with a qualified health plan (QHP) through an “Exchange”.
o Free Choice Vouchers – Employers who offer minimum essential coverage through an eligible employer-sponsored plan and are paying a portion of that coverage will be required to offer an equivalent value voucher, allowing a qualified employee the option of purchasing coverage through the insurance exchange.
o Large Employer Health Coverage Excise Tax – Large employers would be required to pay a penalty if any of its full-time employees were certified to the employer as having purchased health insurance through a state exchange and qualified for either tax credits or a cost-sharing subsidy.
2018
o Excise Tax on High-Cost Employer-Sponsored Health Coverage – There will be a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan where the premiums exceed certain limits.
more »
- Student Loan Forgiveness for Health Professionals
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Previously, an individual’s gross income didn’t include cancellation of debt income that was attributable to the discharge of all or part of any student loan if the discharge was made under a provision of the loan - that all or part of the indebtedness would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers.
more »
- Investment Credit for Therapeutic Discovery Projects
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In 2009 and 2010, for companies with 250 or fewer employees, a 50% nonrefundable investment tax credit is allowed for expenses paid or incurred for qualified investments in qualifying therapeutic discovery projects.
more »
- Insurance for Uninsured Americans with Pre-existing Conditions
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Beginning July 1, 2010, a Pre-Existing Condition Insurance Plan will provide new coverage options to individuals who have been uninsured for at least six months because of a pre-existing condition.
more »
How Will the Health Care Legislation Affect You and Your Taxes?
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In late March 2010, President Obama signed into law the new health care legislation. The legislation will affect virtually every individual in one way or another and will significantly impact the preparation of tax returns in the future. The provisions take effect over a period of years and are categorized by the year they become effective. Some of the provisions include additional taxes to offset the cost of the health care benefits included in the legislation for lower-income individuals.
The following is an overview of the provisions that apply to individual taxpayers and small businesses.
2009
o Student Loan Forgiveness for Health Professionals – Excludes student loan debt forgiveness from income for certain medical professionals who work in health professional shortage areas.
o Investment Credit for Therapeutic Discovery Projects – A small company investment tax credit for expenses incurred for qualified investments in qualifying therapeutic discovery projects.
2010
o Insurance for Uninsured Americans with Pre-Existing Conditions – A Pre-Existing Condition Insurance Plan will provide new coverage options to individuals who have been uninsured for at least six months because of a pre-existing condition.
o Expanding Coverage for Early Retirees – A program that provides reimbursement to sponsors of participating employment-based plans for a portion of the cost of health benefits for early retirees and their spouses, surviving spouses, and dependents.
o Providing Free Preventive Care – New plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, co-pay or coinsurance.
o Pre-Existing Condition Exclusions for Children Under Age 19 – For new plans and existing group plans, the new law includes rules to prevent insurance companies from denying coverage to children under the age of 19 due to a pre-existing condition.
o Elimination of Arbitrary Rescission of Coverage – Insurance companies may no longer retroactively cancel policies because of an "unintentional" mistake on paperwork.
o Lifetime Limits are Phased Out – Effective for all policies issued after September 23, 2010 and those renewing after this date, there can no longer be lifetime limits placed on health care plans.
o Annual Dollar Limits – There is a phase out of annual dollar expenditure limits on health plans over the next three years until 2014 when the Affordable Care Act bans them for most plans.
o Tanning Services Excise Tax – A new 10% excise tax is imposed on the amount paid for any indoor tanning service.
o Excludable Medical Reimbursements for Older Children – An income exclusion for reimbursements of medical care expenses by an employer-provided accident or health plan is extended to any child of an employee who hasn't attained age 27.
o Self-Employed Health Insurance Deduction – Self-employed individuals may include in their tax-deductible health insurance children who have not attained age 27.
o Tax Credits for Small Employers Offering Health Coverage – Provides a tax credit for an eligible small employer for non-elective contributions to purchase health insurance for its employees.
2011
o Employer W-2 Reporting Responsibilities – Employers will be required to disclose the aggregate cost of employer-sponsored health coverage to their employees on Form W-2.
o Increased Tax on Nonqualifying HSA or Archer MSA Distributions – The additional tax for making non-medical withdrawals from Health Savings Plans and Archer MSA plans is increased to 20%.
o Over-the-Counter Medication Restriction for Employer Plans – Over-the-counter medications will no longer qualify for reimbursement.
o Small Employer Simple Cafeteria Plans – Small employers may provide employees with a "simple cafeteria plan."
2012
O Information Reporting Required for Payments to Corporations – Businesses that pay any amount greater than $600 during the year to non-tax-exempt corporate providers of property and services will have to file an information report with each provider and with IRS.
2013
o Additional Hospital Insurance Tax for High-Income Taxpayers – The Hospital Insurance (HI) tax rate (currently at 1.45%) would be increased by 0.9 percentage points on incomes over a threshold.
o Surtax on Unearned Income for High-Income Taxpayers – A 3.8% surtax is imposed on net investment income of high-income individuals, estates, and trusts.
o Employer Health FLEX-Spending Plan Contributions Limited – Medical reimbursements from flexible spending plans is limited to $2,500.
o Medical Itemized Deductions Limited – The AGI threshold percentage for claiming itemized medical expenses is increased from 7.5% to 10%.
o Compensation Deduction Limit for Health Insurance Issuers – Limits companies' deduction for certain employees' compensation.
2014
o Mandatory Heath Insurance Overview – Many of the provisions of the Health Care Legislation are linked to the mandate that everyone becomes insured. The chart provides an overview of how these provisions interact to achieve that goal.
o American Health Benefit Exchanges – By 2014, each state must establish an exchange to help individuals and small employers obtain coverage.
o Penalty For Not Being Insured – Non-exempt U.S. citizens and legal resident taxpayers will be penalized for failing to maintain at the least the minimum essential health coverage.
o Premium Assistance Credit – Tax credits will be available for low-income individuals who obtain health insurance coverage with a qualified health plan (QHP) through an “Exchange”.
o Free Choice Vouchers – Employers who offer minimum essential coverage through an eligible employer-sponsored plan and are paying a portion of that coverage will be required to offer an equivalent value voucher, allowing a qualified employee the option of purchasing coverage through the insurance exchange.
o Large Employer Health Coverage Excise Tax – Large employers would be required to pay a penalty if any of its full-time employees were certified to the employer as having purchased health insurance through a state exchange and qualified for either tax credits or a cost-sharing subsidy.
2018
o Excise Tax on High-Cost Employer-Sponsored Health Coverage – There will be a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan where the premiums exceed certain limits.
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Previously, an individual’s gross income didn’t include cancellation of debt income that was attributable to the discharge of all or part of any student loan if the discharge was made under a provision of the loan - that all or part of the indebtedness would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers. New Law: The law has been amended to include amounts received by an individual in tax years beginning after Dec. 31, 2008; the gross income exclusion for amounts received under the National Health Service Corps loan repayment program or certain State loan repayment programs is modified to include any amount received by an individual under any State loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas as determined by the State.
Amendment Opportunity?
Individuals who qualify and have already filed their 2009 returns should file amended returns to exclude amounts that had previously been reported as income.
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If you think this retroactive income exclusion might apply to you, please give this office a call.
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In 2009 and 2010, for companies with 250 or fewer employees, a 50% nonrefundable investment tax credit is allowed for expenses paid or incurred for qualified investments in qualifying therapeutic discovery projects. Qualifying Therapeutic Discovery Project - A qualifying therapeutic discovery project is one designed to develop a product, process, or therapy to diagnose, treat, or prevent diseases and afflictions by: (1) Conducting pre-clinical activities, clinical trials, clinical studies, and research protocols, or (2) Developing technology or products designed to diagnose diseases and conditions, including molecular and companion drugs and diagnostics, or to further the delivery or administration of therapeutics.
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Beginning July 1, 2010, a Pre-Existing Condition Insurance Plan will provide new coverage options to individuals who have been uninsured for at least six months because of a pre-existing condition. States have the option of running this new program in their state. If a state chooses not to do so, then the individual can utilize the Federal programs. This program serves as a bridge to 2014, when all discrimination against pre-existing conditions will be prohibited. To learn more about the plan for a particular state, visit the Department of Health and Human Services website.
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Too often, Americans who retire without employer-sponsored insurance and before they are eligible for Medicare see their life savings disappear because of high rates in the individual market. To preserve employer coverage for early retirees until more affordable coverage is available through the new Exchanges required to be established by 2014, the new law creates a $5 billion program to provide needed financial help for employment-based plans to continue to provide valuable coverage to people who retire between the ages of 55 and 65, as well as their spouses and dependents. The program provides reimbursement to sponsors of participating employment-based plans for a portion of the cost of health benefits for early retirees and their spouses, surviving spouses, and dependents. The Secretary will reimburse sponsors for certain claims between $15,000 and $90,000 (with those amounts being indexed for plan years starting on or after October 1, 2011). Employers wishing to participate in the program can obtain additional information on the Department of Health Services website.
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Effective for health plan years beginning on or after September 23, 2010, all new plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, co-pay or coinsurance.
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Effective for health plan years beginning on or after September 23, 2010, for new plans and existing group plans, the new law includes rules to prevent insurance companies from denying coverage to children under the age of 19 due to a pre-existing condition. This limit applies to both specific coverage denials (because of a pre-existing condition) AND banning benefit limits (refusing you a policy). This pre-existing condition will also apply to all individuals effective in 2014.
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Effective for health plan years beginning on or after September 23, 2010, insurance companies may no longer retroactively cancel a policy because of sickness or an "unintentional" mistake on paperwork. The only exception is if the case involves fraud or intentional misrepresentation of the facts.
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There is a phase out of annual dollar expenditure limits on health plans over the next three years until 2014 when the Affordable Care Act bans them for most plans. Thus, plans issued or renewed beginning September 23, 2010 will be allowed to set annual limits no lower than the amounts shown in the following table:
If you have additional questions, please give this office a call.
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For indoor tanning services performed on or after July 1, 2010, a new 10% excise tax is imposed on the amount paid for any indoor tanning service, whether paid for by insurance or otherwise. The tax is imposed on tanning service recipients, although the service provider is liable for the collection and payment of the tax; thus, service providers are liable if they fail to collect the tax. "Indoor tanning service" is a service that uses any electronic product that is designed to incorporate one or more ultraviolet lamps, and intended for the irradiation of an individual by ultraviolet radiation, with wavelengths in the air between 200 and 400 nanometers, to induce skin tanning.
The term “indoor tanning service” excludes phototherapy. Phototherapy must be performed by, and on the premises of, a licensed medical professional for the treatment of: dermatological conditions, sleep disorders, seasonal affective disorder or other psychiatric disorders, neonatal jaundice, wound healing, or other medical conditions treatable by exposure to specific wavelengths of light. In general, a payment for indoor tanning services is treated as made, and the liability for the tax is imposed, at the time it can reasonably be determined that the payment is made specifically for indoor tanning services. o Gift Certificates & Gift Cards – Payment for tanning services is made when the card is redeemed, not when it is originally sold. o Bundled Services – Payment for tanning services is made at the time the bundled services are purchased. (Temp. Reg § 49.5000B-1T(d)(3)) o Membership Fees – Where the tanning services are incidental to the overall services provided by a qualified physical fitness facility, the membership fee is not payment for tanning services. o Other Goods & Services – If a payment covers indoor tanning services and other goods and services, the charges for the other goods and services may be excluded in computing the tax, but only if the charges (1) are separable, (2) do not exceed the fair market value of the goods and services, and (3) are shown in the exact amount in the records of the transaction. If the tax is not paid at the time payments for the tanning services are made, then to the extent that it is not collected, it has to be paid by the person performing the service. The tax is to be remitted quarterly on IRS Form 720. Where there are multiple locations, Form 720 must be filed for each separate EIN. Semi-monthly deposits of tax are not required.
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As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010. Generally, under pre-Act law, to be a qualifying child of a taxpayer for this purpose, the child must have been the taxpayer’s dependent under age 19 (or under age 24 in the case of a full-time student).
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Child – Broad Definition for this Purpose
Other than age, the “child” definition has no other restriction. Thus, there is no income or marital restrictions. |
These changes immediately allow employers with cafeteria plans – plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits – to permit employees to begin making pre-tax contributions to pay for this expanded benefit. Employees with children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. Employees may immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change. In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided no later than plan years beginning on or after Sept. 23, 2010. The definition of “child” for this purpose includes the individual’s:
- child,
- stepchild,
- legally-adopted individual,
- an individual lawfully placed with the employee for legal adoption, and
- an eligible foster child.
No other requirements apply so long as the individual meets the definition of a child and has not reached age 27 by the last day of the year. Even a married child is included by this definition! (But the married child’s spouse and/or children are not covered.) A child attains age 27 on the 27th anniversary of the date the child was born (for example, a child born on April 10, 1983 attained age 27 on April 10, 2010). Contact your employer for further information regarding the employer’s plan related to this very beneficial change.
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Background - A self-employed individual (or a partner or a more-than-2%-shareholder of an S corporation) can deduct as an above-the-line expense 100% of the amount paid during the tax year for medical insurance on behalf of himself, his spouse and his dependents subject to the following requirements (Code Sec. 162(l)(1)(B)):
- The deduction cannot exceed the individual’s net earnings from self-employment derived from the trade or business for which the plan providing the coverage is established.
- For a more-than-2% S corporation shareholder, that shareholder's wages from the S corporation are treated as his earned income.
- No individual who is eligible to participate in any subsidized health plan maintained by any employer of the individual or of the individual's spouse is entitled to the deduction. This test for eligibility is made for each calendar month and applied separately to long-term care insurance.
New Benefit - As part of the new health care reform law (Notice 2010-38), this deduction, as of March 30, 2010, also applies to a self-employed individual’s child under the age of 27 as of the end of the year. The definition of “child” for this purpose includes the individual’s:
- child,
- stepchild,
- legally-adopted individual,
- an individual lawfully placed with the employee for legal adoption, and
- an eligible foster child.
Previously, the child would have had to qualify as a dependent. No other requirements apply so long as the individual meets the definition of a child and has not reached age 27 by the last day of the year. Even a married child is included by this definition! (But the married child’s spouse and/or children are not covered.) A child attains age 27 on the 27th anniversary of the date the child was born (for example, a child born on April 10, 1983 attained age 27 on April 10, 2010). If the self-employed individual utilizes a group policy provided by an association, be aware that although group policies offered by insurers are also required to cover older children, they are only required for children under the age of 26. Also, that law change only becomes effective for plan years beginning on or after September 23, 2010.
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The Patient Protection and Affordable Care Act provides a tax credit for an eligible small employer (ESE) for nonelective contributions to purchase health insurance for its employees. The term "nonelective contribution" means an employer contribution other than an employer contribution pursuant to a salary reduction arrangement. o 2010 through 2013 – For tax years 2010 through 2013, qualified small employers, generally those with no more than 25 full-time employees with an average annual full-time equivalent wage of no more than $50,000 will be eligible for a tax credit of up to 35% of the cost of nonelective contributions to purchase health insurance for its employees. (Note, however, that the phase-out of the credit operates in such a way that an employer with exactly 25 full-time equivalent employees or with average annual wages exactly equal to $50,000 is not eligible for the credit. The maximum credit is available to employers with no more than 10 full-time equivalent employees with annual full-time equivalent wages from the employer of less than $25,000. o 2014 and Later - In 2014 and later, eligible small employers who purchase coverage through the Insurance Exchange would be eligible for a tax credit for two years of up to 50% of their contribution. An eligible small employer generally is an employer with no more than 25 full-time equivalent employees employed during its tax year, and whose employees have annual full-time equivalent wages that average no more than $50,000. The credit percentage that can be claimed varies with the number of employees and average wages. The full amount of the credit is available only to an employer with 10 or fewer full-time equivalent employees and whose employees have average annual full-time equivalent wages (AAEW) from the employer of less than $25,000. Calculating the credit amount - The credit is equal to the lesser of the following two amounts multiplied by an applicable tax credit percentage (shown in the table below) and subject to the phase-outs discussed later: (1) The amount of contributions the eligible small employer made on behalf of the employees during the tax year for the qualifying health coverage. (2) The amount of contributions that the employer would have made during the tax year if each employee had enrolled in coverage with a small business benchmark premium. Contributions under this method are determined by multiplying the benchmark premium by the number of employees enrolled in coverage and then multiplied by the uniform percentage that applies for calculating the level of coverage selected by the employer. (See table below)
*For years after 2013, only available for a maximum coverage period of two consecutive tax years
Computing the Credit Phase-Out – The full credit is only available to eligible small employers with 10 or less full-time equivalent employees with an average annual full-time equivalent wage (AAEW) of $25,000 or less. If either or both of these thresholds are exceeded, then the credit is reduced.
| There is no credit reduction if there are 10 or less full-time equivalent employees FTEs with an AAEW of $25,000 or less. |
| There is no credit if the full-time equivalent employees exceed 25 or the AAEW exceeds $50,000. |
To figure the reduction of credit when the limits are exceeded, the number of the employer’s full-time equivalent employees and average annual full-time equivalent wages (AAEW) for the year must be determined. Figuring the number of full-time equivalent employees - An employer's full-time equivalent employees (FTEs) is determined by dividing the total hours the employer pays wages during the year (but not more than 2,080 hours per employee) by 2,080. The result, if not a whole number, is then rounded down to the next lowest whole number if any.  Calculating average annual wages (AAEW) - Average annual equivalent wages is determined by dividing the employer’s total FICA wages (without regard to the wage base limitation) for the tax year by the number of the employer's full-time equivalent employees for the year (rounded down to the nearest $1,000 if need be).  Credit reduction - If the number of full-time equivalent employees exceeds 10 or if AAEW exceed $25,000, the amount of the credit is reduced (but not below zero). Both reductions can apply at the same time!  Example – Joe owns a small California wood working business and has 12 employees, not counting himself or family members. The total FICA wages (without regard for wage base limitations) for the year were $297,500 and total hours worked by his employees during the year were 24,400. None of his employees worked more than 2,080 hours during the year. Joe made nonelective contributions to purchase health insurance for his employees in the amount of $49,800 for the year. Joe’s credit is determined as follows:
• Small Business Benchmark Premium (from Table Below) = 12 x 4,628 = $55,536
• Smaller of actual premium paid or Benchmark premium = $49,800
• Tentative credit = $49,800 x 0.35 = $17,430
• Full-time equivalent employees (FTEs) = 24,400/2080= 11.7 rounded down = 11
• Average annual full-time equivalent wages (AAEW) = $297,500/11 = $27,045 rounded down = $27,000
• FTE Reduction = ((11-10)/15) x $17,430 = $1,162
• AAEW Reduction = ((27,000-25,000)/25,000) x $17,430 = $1,394
• Joe’s health insurance tax credit = $17,430 - $1,162- $1,394 = $14,874
 o The credit reduces the employer's deduction for employee health insurance. o Aggregation rules apply in determining the employer. o Self-employed individuals, including partners and sole proprietors, 2% shareholders of an S Corporation, and 5% owners of the employer are not treated as employees for purposes of this credit. o The credit is not available for a domestic employee of a sole proprietor of a business, and there's a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. o The credit is a general business credit and can be carried back one year and forward for 20 years. However, because an unused credit amount cannot be carried back to a year before the effective date of the credit, any unused credit amounts for taxable years beginning in 2010 can only be carried forward. o The credit is available for tax liability under the alternative minimum tax. o The credit is initially available for any tax year beginning in 2010, 2011, 2012 or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is generally health insurance coverage purchased from an insurance company licensed under State law. o For tax years beginning in years after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a State exchange and is only available for a maximum coverage period of two consecutive tax years beginning with the first year in which the employer or any predecessor first offers one or more qualified plans to its employees through an exchange. Please call this office if you have questions related to Tax Credits for Small Employers Offering Health Coverage.
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Beginning in tax year 2012 (was originally scheduled to start for 2011 but has been delayed), employers will be required to disclose the aggregate cost of the benefit provided by them by the employer-sponsored health insurance coverage on the employee's annual Form W-2. The amount included in the W-2 does not include contributions to Archer MSAs, Health Savings Accounts or flexible spending arrangements. Don’t Read Too Much Into This! This is simply to provide an employee with the dollar value of the benefits being paid for by the employer. There have been rumors floating around that contributions to an employer’s qualified health plan would no longer be excludable from income. This is not true! If it was excludable before, it is still excludable!
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The additional tax for HSA withdrawals for other than qualified medical expenses before age 65 are increased from 10% to 20%, and the additional tax for Archer MSA withdrawals for other than qualified medical expenses is increased from 15% to 20%. Distributions after age 65 are not subject to the penalty.
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Beginning in 2011, over-the-counter medications, except for doctor prescribed over-the-counter medication and insulin, will no longer qualify for reimbursement. This restriction applies to health reimbursement accounts (HRAs), health flexible spending accounts (FSAs), health savings accounts (HSAs), and Archer medical savings accounts (MSAs).
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For years beginning after Dec. 31, 2010, small employers (average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a "simple cafeteria plan." Under such a plan, the 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– o including group term life insurance, o benefits under a self-insured medical expense reimbursement plan, and o benefits under a dependent care assistance program. Note: Once the Simple Cafeteria plans have been established, the employer is deemed as having met the small employer requirement until such time as the average number of employees exceeds 200 on business days during any year proceeding any such subsequent year. Simple Cafeteria Plan – For purposes of the provision, a simple cafeteria plan is a plan that: (1) is established and maintained by an eligible employer, (2) meets prescribed contribution requirements, and (3) meets prescribed eligibility and participation requirements. Contribution Requirements – To create a simple cafeteria plan, the employer will have to make contributions to provide qualified benefits under the plan on behalf of each qualified employee (without regard to whether a qualified employee makes any salary reduction contribution) in an amount equal to: (1) a uniform percentage (not less than 2%) of the employee's compensation for the plan year, or (2) an amount which is not less than the lesser of (a) 6% of the employee's compensation for the plan year, or (b) twice the amount of the salary reduction contributions of each qualified employee. The requirements of (2) above are not met if, under the plan, the rate of contributions with respect to any salary reduction contribution of a highly compensated or key employee at any rate of contribution is greater than that with respect to an employee who is not a highly compensated or key employee. Qualified Employee – Does not include highly compensated or key employees. Highly-Compensated Employee – Is any employee who: (1) was a five percent owner at any time during the year or the preceding year or, (2) for the preceding year, received compensation from the employer in excess of the inflation adjusted compensation amount of $80,000 ($110,000 for 2010), and, if the employer elects, was in the top-paid group of employees for the preceding year. The employer can make the election annually, without the consent of IRS. An employee is in the top-paid group of employees for any year if such employee is in the group consisting of the top 20 percent of the employees when ranked on the basis of compensation paid during such year (Code Sec. 414(q)(1)(B)(ii)). Key Employee - In general, the term “key employee” (Sec 416(i)) means an employee who, at any time during the plan year, is an officer of the employer having an annual compensation greater than $130,000 or a 5-percent owner of the employer, or a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000. Minimum Eligibility & Participation Requirements - The minimum eligibility and participation requirements will be met with respect to any year if, under the plan, (a) all employees who have at least 1,000 hours of service for the preceding plan year are eligible to participate, and (b) each employee eligible to participate in the plan may, subject to terms and conditions applicable to all participants, elect any benefit available under the plan. However, an employer will be able to elect to exclude under the plan, employees: (1) who have not attained the age of 21 before the close of a plan year (plan may provide for a younger age), (2) who have less than one year of service with the employer as of any day during the plan year (plan may provide for a shorter period of service), (3) who are covered under an agreement which the Secretary of Labor finds to be a collective bargaining agreement, if there is evidence that the benefits covered under the cafeteria plan were the subject of good faith bargaining between employee representatives and the employer, or (4) who are described in Code Sec. 410(b)(3)(C) (relating to nonresident aliens working outside the U.S.) If you would like to explore the benefits of setting up a simple cafeteria plan for your company, please give this office a call.
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For payments made after Dec. 31, 2011, businesses that pay any amount greater than $600 during the year to non-tax-exempt corporate providers of property and services will have to file an information report with each provider and with IRS. This is a BIG Deal! This means that every individual and entity that is paid for goods and services in the course of business in excess of $600 must be issued a 1099. This information-reporting provision will substantially increase the paperwork burden on businesses.
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The Hospital Insurance (HI) tax rate (currently at 1.45%) would be increased by 0.9 percentage points on individual taxpayer earnings (wage withholding and SE tax) in excess of compensation thresholds for the taxpayer’s filing status; see table below. Wage Withholding – Thus, the wage withholding HI rate would be 1.45% up to the income threshold and would be 2.35% (1.45 + 0.9) on amounts in excess of the threshold. SE Tax – The SE tax rate would be 2.9% up to the income threshold and would be 3.8% (2.9 + 0.9) on amounts in excess of the threshold.
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All Income Combined for Purposes of the Threshold
For purposes of determining the additional HI tax, all wage and self-employment income is combined. For married taxpayers, the spouses’ wages and self-employment incomes are combined.
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Wages – The following details pertain to wage withholding: o An employer must withhold the additional HI tax based upon the wages the employee receives from the employer. o If the spouse works for the same employer, the employer may disregard the amount of wages received by the employee's spouse when computing the withholding for either spouse. o Where a taxpayer has multiple employment, or self-employment and/or the spouse also works, the taxpayer is responsible for the additional 0.9% tax to the extent it is not withheld by an employer and will pay the additional amount on their 1040. o The employer will not be liable for any additional 0.9% HI tax that it fails to withhold and that the employee later pays, but will be liable for any penalties resulting from its failure to withhold.
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No Additional Tax Imposed on Employers
The entire 0.9% additional HI tax is the responsibility of the individual taxpayer and the employer is not required to make a matching contribution.
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Self-Employment Income – The following details pertain to payment of the additional HI SE tax: o The self-employed taxpayer will be responsible for the additional 0.9% HI tax. And like an employer will not be liable for the matching amount. o The SE tax computation deduction continues to be computed using half the sum of the OASDI tax rate and only the regular HI tax rate (i.e., 7.65%), without regard to the additional 0.9% HI tax. Reporting Mechanics (Form) – Since this tax will not apply until 2013, the IRS has until late in 2013 to modify their forms to collect tax not withheld by an employer or collected as part of the SE tax. They might develop a new form or accommodate the new HI tax on either the Form 4137 or Schedule SE. Example – Multiple Employers – Hal has two employers, one of which pays him an annual salary and bonus of $175,000 and the other pays him $75,000. Hal’s wife, Patricia, has wages of $50,000. Their combined wage total is $300,000 but no one employer paid them more than $250,000. Thus, none of their employers withheld any additional HI tax, so Hal and Patricia will be responsible for the additional $450 (0.9% of ($300,000 - $250,000)) of HI tax when they file their 1040.
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A new surtax called the Unearned Income Medicare Contribution Tax is imposed on individuals, estates, and trusts. Individuals - For individuals, the surtax is 3.8% of the lesser of: 1. The taxpayer’s net investment income or 2. The excess of modified adjusted gross income over the threshold amount ($250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return, and $200,000 for all others)
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Potential Double Whammy
This surtax is in addition to the 0.9% hospital insurance (HI) tax imposed on high-income taxpayers. Thus, taxpayers with both unearned income and high wages or self-employment income could be hit by both taxes. |
Estates & Trusts - For an estate or trust, the surtax is 3.8% of the lesser of: 1. Undistributed net investment income or 2. The excess of AGI over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins.
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Generally Won’t Apply to Simple and Grantor Trusts
Simple trusts require all income to be distributed and don’t provide for charitable contributions. Income from grantor trusts is taxable to the owner (grantor) of the trust. |
Net Investment Income - “Net” investment income is investment income reduced by allowable investment expenses. Investment Income - Investment income includes:
- Income from interest, dividends, annuities, and royalties,
- Rents (other than derived from a trade or business),
- Capital gains (other than derived from a trade or business),
- Trade or business income that is a passive activity with respect to the taxpayer, and
- Trade or business income with respect to trading financial instruments or commodities.
Exclusions from Gross Income - For surtax purposes, gross income doesn't include excluded items, such as interest on tax-exempt bonds, veterans' benefits, and excluded gain from the sale of a principal residence. The surtax does not apply to:
- Income from other trades or businesses conducted by a sole proprietor, partnership, or S corporation (Committee Report),
- A nonresident alien,
- A trust of all the unexpired interests in which are devoted to charitable purposes,
- A trust that is tax-exempt under Code Sec. 501,
- A charitable remainder trust tax-exempt under Code Sec. 664 or
- Distributions from qualified retirement plans.
Disposition of a Partnership Interest or Stock in an S corporation - Gain or loss is taken into account only to the extent gain or loss would be taken into account by the partner or shareholder if the entity had sold all its properties for fair market value immediately before the disposition. Thus, only net gain or loss attributable to property held by the entity which is not property attributable to an active trade or business is taken into account.
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Net Investment Income for Most Taxpayers
Thus, for taxpayers that don’t engage in passive activities or a commodities trading business, net investment income will include non-business income from interest, dividends, annuities, rents, and capital gains less allowable deductions.
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Example – For 2013, Dave, a single taxpayer, has taxable investment income of $25,000 and no investment expenses. Thus, his net investment income is $25,000. His AGI for the year is $220,000. The amount subject to the 3.8% surtax is the lesser of the net investment income ($25,000) or the amount by which his AGI exceeds the $200,000 threshold for single individuals, which in Dave’s case is $20,000 ($220,000 - $200,000). Thus, Dave’s surtax is $760 (3.8% of $20,000).
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In order for a health FSA to be a qualified benefit under a cafeteria plan, 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 the health FSA for a plan year (or other 12-month coverage period) cannot exceed $2,500.
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The itemized deduction for medical expenses will be limited in the following manner: AGI Threshold - The AGI threshold percentage for claiming medical expenses on a taxpayer’s Schedule A is increased from 7.5% to 10%, which is the same as the current threshold percentage for alternative minimum tax (AMT) purposes. Delayed Implementation for Seniors - Individuals (and their spouses) age 65 (before close of year) and older will continue to use the 7.5% rate though 2016.
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AMT & Regular Tax AGI Limit Become the Same
The Medical AGI Threshold for AMT is also 10%. Thus, with the implementation of the 10% threshold for regular tax, there will no longer be a medical adjustment for AMT.
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Planning – Pay Discretionary Medical Expenses Before 2013
Taxpayers with potential discretionary medical expenses, such as orthodontist or dental work, vision care, etc., should consider having work done and paid for before 2013.
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For services performed during that year, a covered health insurance provider isn't allowed a compensation deduction for an “applicable individual” (officers, employees, directors, and other workers or service providers such as consultants) in excess of $500,000.
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Many of the provisions of the Health Care Legislation are linked to the mandate that everyone becomes insured. The chart included here provides an overview of how these provisions interact to achieve that goal. Click here for the chart.
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By 2014, each state must establish an exchange to help individuals and small employers obtain coverage. Benefit options will be in a standard format and a single enrollment form used for all policies. Plans offered through an exchange must provide essential health benefits, limit cost sharing, and provide specified accrual benefits (i.e., the percentage amount paid the insurer). Out-of-pocket deductibles are limited to caps for Health Savings Accounts and further limited to $2,000 ($4,000 for families) in the small group market. Plans in the individual and small group markets use a metallic designation for the accrual benefits provided:
- Bronze 60%
- Silver 70%
- Gold 80%
- Platinum 90%
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Non-exempt U.S. citizens and legal resident taxpayers will be penalized for failing to maintain at the least the minimum essential health coverage, which includes: o Government-sponsored programs (e.g., Medicare, Medicaid, Children's Health Insurance Program), o Eligible employer-sponsored plans, o Plans in the individual market, and o Certain grandfathered group health plans and other coverage as recognized by Health and Human Services (HHS) in coordination with IRS. The penalty will be phased in beginning in 2014 and fully implemented in 2016. Penalty - The penalty for noncompliance is the greater of: (A) The sum of the monthly penalty amounts for months in the taxable year during which 1 or more such failures occurred, or (B) An amount equal to the national average premium for qualified health plans which have a bronze level of coverage, provide coverage for the applicable family size involved, and are offered through Exchanges for plan years beginning in the calendar year with or within which the taxable year ends. Monthly Penalty Amounts – The monthly penalty amount is an amount equal to 1/12 of the greater of the following amounts: (A) Flat dollar amount – (See computation of the flat dollar amount below) (B) Percentage of income - An amount equal to the applicable percentage for the year (see table below) multiplied by the amount the taxpayer's household income for the year exceeds the taxpayer’s income tax filing threshold. Flat Dollar Amount – The flat dollar amount is the lesser of: 1. The sum of the applicable dollar amounts (see table below) for all individuals who were not covered for the month or 2. 300% of the per adult penalty (maximum $1,875 in 2016). Percentage of Income – The percentage of income used to determine the monthly penalty is phased in for 2014 through 2016 and inflation adjusted for years after 2016. The amounts are:  Applicable Dollar Amounts (Code Sec 5000A(c)(3)) - The amounts are:  If an applicable individual has not attained the age of 18 as of the beginning of a month, the “applicable dollar amount” for the month will be equal to one-half of the amount shown in the table. Household Income - Household income is the sum of the modified adjusted gross incomes (MAGIs) of the taxpayer and all individuals accounted for in the family size required to file a tax return for that year. Modified AGI means AGI increased by all tax-exempt interest and foreign earned income. Penalty Enforcement - For a joint return, the individual and spouse are jointly liable for any penalty payment. The penalty is not subject to the enforcement provisions of subtitle F of the Code and the use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Noncompliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner. Therefore, enforcement is generally limited to seizing a refund. Three-Month Grace Period – No penalty is assessed for individuals who do not maintain health insurance for a period of three months or less during the tax year. If an individual exceeds the three-month maximum during the taxable year, the penalty for the full duration of the gap during the year is applied. If there are multiple gaps in coverage during a calendar year, the exemption from penalty applies only to the first such gap in coverage. IRS is to provide rules when a coverage gap includes months in multiple calendar years. Taxpayers Exempt from the Penalty –The coverage requirement does not apply to:
- Individuals who cannot afford coverage because their required contribution for employer-sponsored coverage or the lowest cost “bronze plan” in the local Insurance Exchange exceeds 8% of household income for the year. After 2014, the 8% exemption is increased by the amount by which premium growth exceeds income growth. If self-only coverage is affordable to an employee, but family coverage is unaffordable, the employee is subject to the penalty if he does not maintain minimum essential coverage. However, any individual eligible for employer coverage due to a relationship with an employee (e.g. spouse or child of employee) is exempt from the penalty if that individual does not maintain minimum essential coverage because family coverage is not affordable (i.e., exceeds 8% of household income).
- Taxpayers with income below the income tax filing threshold (which for 2010 generally is $9,350 for a single person or a married person filing separately and is $18,700 for married filing jointly).
- Those exempted for religious reasons (who must be members of a recognized religious sect exempting them from self-employment taxes).
- Individuals residing outside of the U.S. (who are deemed to maintain minimum essential coverage).
- Individuals who are incarcerated or are not legally present in the U.S.
- All members of Indian tribes.
Example – Monthly Penalty Amount – For the example, assume the following: Married taxpayers under the age of 65 who were not insured for five months during 2016. Their AGI for the year was $50,000 and they had $500 in tax-exempt interest income. For this example, use the 2010 income filing threshold, which for a married couple is $18,700 ($11,400 + $3,600 + $3,600). The penalty is determined as follows:
- Flat Dollar Amount is the lesser of (1) the sum of the applicable dollar amounts for all individuals not insured (per person penalty) or (2) 300% of the dollar amount for the year (per family penalty).
(1) = ($625 x 2) = $1,250 (the lesser amount)
(2) = 300% x $625 = $1,875
- Percentage Income Amount is the applicable percentage for the year times the taxpayer’s income in excess of the income tax filing threshold for the taxpayer determined as follows:
Taxpayer’s income = AGI plus tax-exempt income = $50,000 + $500 = $50,500
Percentage Amount = ($50,500 - $18,700) x 2.5% = $795
Thus, the taxpayer’s monthly penalty amount is 1/12 of the greater of the flat dollar amount ($1,250) or the percentage of income amount ($795). Thus, the taxpayer’s monthly penalty amount is: $104.17 ($1,250/12). Thus, the taxpayer will be subject to a penalty of the greater of $520.85 ($104.17 x 5 months) or an amount based on the national average premium for qualified health plans which have a bronze level of coverage.
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Tax credits will be available for low-income individuals who obtain health insurance coverage with a qualified health plan (QHP) through an “Exchange”.
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"Exchange"
The Health Care Act requires each state to establish an “American Health Benefit Exchange” (“Exchange”) by Jan. 1, 2014, and requires insurers to provide QHPs to be sold on these Exchanges. The Premium Assistance Credit applies to QHPs purchased on an Exchange. |
Applicable Taxpayers – Generally, these are individuals whose household income is at least 100%, but not more than 400% of the federal poverty line and who don't receive health insurance under an employer plan, Medicaid or other acceptable coverage. Based upon the current poverty levels, the credit would phase-out at $42,420 for individuals and $88,200 for a family of four. Enrollment - Eligible individuals 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, the individual will receive a premium assistance credit based on income. Credit Paid Directly to Insurance Plan - IRS will pay the premium assistance credit amount directly to the insurance plan in which the individual is enrolled, and the individual will pay the difference between the premium and the credit. For employed individuals who purchase health insurance through a state Exchange, the premium payments will be made through payroll deductions. Failure to Pay the Difference - Individuals who fail to pay all or part of the remaining premium amount will be given a mandatory three-month grace period before an involuntary termination of their participation in the plan. Eligibility - Eligibility for the premium assistance credit will be based on the individual's income for the tax year ending two years before the enrollment period. (Committee Report) The Secretary of Health and Human Services (HHS Secretary) must establish procedures for determining whether an individual who is applying for coverage in the individual market by a QHP offered through an Exchange, or who is claiming a premium assistance credit or reduced cost-sharing, meets the necessary eligibility requirements. Amount of Premium Assistance Credit - The credit is based on the taxpayer's household income level relative to the federal poverty line. The calculation is computed on a sliding scale starting at 2.0% of income for taxpayers at or above 100% of the poverty line and phasing out to 9.5% of income for those at 400% of the poverty line. The reference premium will be the second lowest cost silver plan available in the individual market in the rating area in which the taxpayer resides. Deductibles & Co-payments - The standard out-of-pocket maximum limits will be reduced by:
- Two-thirds for individuals with household incomes of more than 100% but not more than 200% of the poverty line,
- One-half for individuals between 201% and 300% of the poverty line, and
- One-third for individuals between 301% and 400% of the poverty line. The cost-sharing subsidy is available only for those months in which an individual receives the Premium Assistance Credit.
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Employers who offer minimum essential coverage through an eligible employer-sponsored plan and are paying a portion of that coverage will be required to offer an equivalent value voucher, allowing a qualified employee the option of purchasing coverage though the insurance exchange. Qualified Employee – A qualified employee is one:
- Who does not participate in the employer-sponsored plan;
- Whose required contribution to the employer exceeds 8%, but does not exceed 9.5% of household income; and
- Whose income does not exceed 400% of the poverty line for the family.
Inflation Adjustments - After 2014, the credit percentage rates will be indexed to reflect the rate of premium growth over income growth between the preceding calendar year and 2013. Voucher Value – The voucher value will be equal to the monthly cost of the individual’s self-only or family coverage had the employee participated in the employer’s plan. Taxability of the Voucher – To the extent the voucher exceeds the premium of the health care chosen by the employee, the excess amount is included in the employee’s gross taxable income. Otherwise, there is no taxability.
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Large employers, generally those with 50 full-time employees in the prior calendar year, that: o Do not offer coverage for all its full-time employees, o Offer minimum essential coverage that is unaffordable (employee contribution is more than 9.5% of the employee's household income), or o Offer minimum essential coverage where the plan's share of the total allowed cost of benefits is less than 60%, Would be required to pay a penalty if any of its full-time employees were certified to the employer as having purchased health insurance through a state exchange and qualified for either tax credits or a cost-sharing subsidy discussed previously. (Code Sec. 4980H(a))
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Interaction with Premium Credit
Generally, if an employee is offered affordable minimum essential coverage under an employer-sponsored plan, he is ineligible for a premium tax credit and cost-sharing reductions for health insurance purchased through a state exchange.
However, if the coverage is unaffordable (see above) or the plan’s share of benefits is less than 60%, then he is eligible, but only if he declines to enroll in the coverage and purchases coverage through the exchange instead. |
Penalty - Employer Not Offering a Health Care Plan – An applicable large employer would be liable for the penalty (figured monthly) if the employer: 1) Fails to offer to its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage” under an “eligible employer-sponsored plan” for that month; and (2) At least one full-time employee has been certified to the employer as having enrolled for that month in a qualified health plan for which a premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee. The excise tax penalty for any month would be $167 ($2,000/12) times the number of full-time employees in excess of 30. Example – No Health Care Plan – In January of 2014, an applicable large employer with 120 employees does not offer a health care plan to its employees. Ten of the employees are certified as being enrolled in January in a qualified plan and three of those employees were eligible for a premium tax credit. The penalty is $167 times the number of full-time employees in excess of 30. Thus, the penalty for the month of January is $15,030 ((120-30) x $167.00). If none of the 10 employees covered by qualified plans had received the premium tax credit, the employer would not have paid any penalty.Penalty – Employees Qualify for Premium Tax Credits or Cost-Sharing Assistance – An applicable large employer would be liable for the penalty (figured monthly) if the employer: (1) Offers to its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage” under an “eligible employer-sponsored plan” for that month; and (2) At least one full-time employee has been certified to the employer as having enrolled for that month in a qualified health plan for which a premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee; The excise tax penalty for any month would be $250 ($3,000/12) times the number of full-time employees that receive premium tax credit or cost-sharing reductions through an Exchange but not to exceed the penalty imposed had the employer not offered health care insurance. Example – Health Care Plan but Employees Qualify for Premium Tax Credit or Cost Sharing Reductions – In January of 2014, an applicable large employer with 120 employees offers a health care plan to its employees, but the cost of the plan does not meet the affordable criteria (employee contribution is more than 9.5% of the employee's household income or the plan's share of the total allowed cost of benefits is less than 60%) and 20 of the employees sign up for the insurance through an exchange and receive Premium Tax Credit or Cost-Sharing Reductions. The employer’s excise tax penalty is $250 times 20. Thus, the penalty for the month of January is $5,000.Penalty – Decision Tree – The flow chart below provides and overview of the large employer health care excise tax.
Applicable Large Employer - An “applicable large employer” is one that employed an average of at least 50 “full-time employees” on business days during the preceding calendar year (for an employer that wasn't in existence throughout the preceding calendar year, the determination is based on the average number of employees reasonably expected to be employed on business days in the current calendar year). But under an exemption, an employer will not be considered to employ more than 50 full-time employees if: (a) the employer's workforce exceeds 50 full-time employees for 120 days, or fewer, during the calendar year; and (b) the employees in excess of 50 employed during that 120-day (or fewer) period were seasonal workers, e.g., retail workers employed exclusively during the holiday season. Special rules apply to construction industry employers. Part-Time Employees - Solely for purposes of determining whether an employer is an applicable large employer, an employer will also have to include for that month the number of full-time employees determined by dividing (a) the aggregate number of hours of service of employees who are not full-time employees for the month by (b) 120. Example – Equivalent Full-Time Employees - For his business, John has 45 full-time employees plus he has 20 part-time employees. His part-time employees for the month of January worked 960 hours. That is the equivalent of 8 (960/120) full-time employees. Thus, the number of John’s full-time employees for the month of January is 53 (45 + 8).
Penalty Deductibility – This excise tax penalty is nondeductible under the general rules for excise taxes.
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Beginning in tax year 2018, there will be a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan where the premiums exceed the following amounts: Single Coverage: $10,200 Single Coverage, high-risk employment or retired age 55 and older: $11,850 Family coverage: $27,500 Family coverage high-risk employment or retired age 55 and older: $30,950 The tax would apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals). Stand-alone dental and vision plans would be disregarded in applying the tax. The dollar amount thresholds may be later adjusted for inflation.
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Student Loan Forgiveness for Health Professionals
