patient protection and affordable care act, health care and education reconciliation act of 2010,...

PATIENT PROTECTION AND AFFORDABLE CARE ACT, HEALTH CARE AND EDUCATION

RECONCILIATION ACT OF 2010, THE HIRING INCENTIVES TO RESTORE EMPLOYMENT ACT

ANDSMALL BUSINESS JOBS ACT

Presented by Larry Lucarelli, CPA andKenneth Laks, CPA

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Patient Protection and Affordable Care Act, Health Care and Education

Reconciliation Act of 2010

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Health Care Act

On March 23, 2010 President Obama signed into law the Patient Protection and Affordable Care Act which contained a massive overhaul of the U.S. Healthcare system which will affect nearly all taxpayers, many employers and many elements of the health care industry.

On March 30, 2010 the Health Care and Education Reconciliation Act of 2010 was signed into law and modified the above act.

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Credit for Therapeutic DiscoveryChanges taking place in 2009:

• 50% credit for investments in qual. Therapeutic discovery projects.• Eligible taxpayer employs no more than 250 employees at time of

application.• Qualifying project:

• Treat or prevent diseases or conditions with pre-clinical activities, clinical trials, research protocols.

• Diagnose diseases or conditions to determine molecular factors, or

• Develop a product, process or technology to further delivery or administration of

therapeutics.• Applications must be made and award certifications issued

• $1 billion limit for 2009 and 2010

• May be done through grant rather than credit.• Effective for amounts paid or incurred after 12/31/08, in tax years

beginning after that date.

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Loan Forgiveness Program

Changes taking place in 2009 (continued):

• MDs graduate with debt of $155,000.• NHSC repays $50,000 every 2 years.• New: State repayment programs allowed same

exclusion.• Effective date: Forgiveness starting January 1, 2009.

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Timeline of Health Care ReformChanges taking place in 2010:

Excise Tax on Tanning Services Tanning Services performed on or after July 1, 2010 will

have a 10% excise tax imposed. Recipients of service incur the tax.

Codification of economic substance, imposition of new penalties

For transactions entered into after March 30, 2010 the following applies:

Where the economic doctrine is relevant the transaction will only have relevance if normal conditions are met.Failure to meet those conditions could result in 20% to 40% penalties.

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Timeline of Health Care ReformChanges taking place in 2010 (continued):

Adoption CreditEmployer provided assistance as well as overall credit is increased by $1,000 for

tax years beginning after December 31, 2009. The credit is also being made refundable.

Expanded dependent coverage in employer health plans

Effective on or after March 30, 2010 for income exclusion and effective for plans beginning on or after September 23, 2010 for coverage exclusion, young adults will be able to be covered under their parents health plan until they attain the age of 26. Income exclusion runs until end of year that they turn 26.

Example: George has a son who will turn 26 on February 7, 2011. George’s son is covered under plan technically until February 7, 2011, but if plan allows son to stay on plan for entire year then there would be no income inclusion on George’s W-2 for the period from February 8, 2011 through December 31, 2011.

Coverage applies even if child does not live with parents, not a dependent on parent’s tax return or still a student. Child can be married as well and be covered under parents plan

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Timeline of Health Care Reform

• Changes taking place in 2010 (continued)– Non-Discrimination rules

• Effective for plan years beginning on or after September 23,2010, fully insured plans now must comply with the nondiscrimination requirements for self-funded plans. This does not apply to grandfathered health plans.

• IRC Section 105(h) covers Non-discrimination rules• For a plan to be nondiscriminatory with respect to participation it must pass

one of the three coverage tests:– Seventy percent of all employees benefit under the plan;

– The plan benefits 80% of eligible employees and 70% of all employees are eligible;

– The plan benefits a nondiscriminatory classification of employees

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• Changes taking place in 2010 (continued)• Failure to comply with Non-discrimination rules- $100 /day excise tax

for each violation.

Grandfathered status- many limitations and only temporary- CHECK WITH YOUR BENEFITS PROVIDER!!!!!

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Small Employer Health Insurance Credit

Effective for tax years beginning after December 31, 2009 an eligible small employer (ESE) is entitled to a tax credit for making nonelective contributions to buy health insurance for its employees.

An ESE generally is an employer with no more than 25 full time equivalent employees (FTEs) employed during its tax year and whose employees have annual full time equivalent wages that average no more than $50,000. The full credit is available to an employer with 10 or fewer FTEs and whose employees have

average annual FTE wages from the employer of not more than $25,000. Phase-out occurs for employers in the median.

For profit companies eligible for 35% credit for 2010-2013 and 50% beginning after 2013. Not for profit companies eligible for 25% credit for 2010-2013 and 35% for 2014 and on.

Employers must pay at least 50% of premium of employee to be counted as eligible (single coverage is benchmark).

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Small Employer Health Insurance Credit (continued)

Example to determine FTE

For 2010 year Company Z has 5 employees paid for 2,080 hours each and 3 employees paid for 1040 hours each and 1 employee paid for 2,300 hours.

1. 10,400 hours for the 5 employees paid for 2,080 hours each (5 x 2,080).

2. 3,120 hours for the 3 employees paid for 1,040 hours each (3 x 1,040); and

3. 2,080 hours for the 1 employee paid for 2,300 hours (lesser of 2,300 and 2,080)

Total is 15,600 hours

Company Z has 7 FTEs (15,600/2,080 = 7.5 and rounded down to lowest

whole number)

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For 2010 Charles Company a qualified employer (pays at least 50% of premium) with 12 FTEs and average annual wages of $30,000. Average wage obtained by taking total wages paid to FTEs and dividing by the number of FTEs. Charles Company pays $96,000 in health care premiums (does not exceed average premium for the small group market in the employers State).

Credit is:

1. Initial amount of credits 35% X $96,000 = $33,600.2. Credit reduction for FTEs in excess of 10 ($33,600 X 2/15) = $4,480 3. Credit reduction for average annual wages in excess of $25,000 ($33,600 X

$5,000/$25,000) = $6,7204. Total Credit reduction is $4,480 + $6,720 = $11,2005. Total 2010 tax credit $33,600 - $11,200 = $22,400

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Premiums paid for entire 2010 year are counted. The credit is claimed on annual income tax return. Self employed individuals including partners and sole proprietors, 2% shareholders of an S Corporation and 5 % owners of the employers (defined under IRC 416) do not count in calculation. Seasonal workers are also not counted unless they work more than 120 days during year.

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W-2 must include cost of employer – provided health insurance.

For tax years beginning after December 31, 2010 an employer must disclose on each employee’s W-2 the value of the employee’s health insurance coverage sponsored by the employer.

Employer contributions to Archer medical savings accounts or FSA’s are not included.

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Restricted definition of medicine for health plan reimbursements

For tax years beginning after December 31, 2010 over the counter medicines (OTC) cannot be reimbursed with excludible income through a FSA plan unless the medicine is prescribed by a doctor. Notice 2010-59

Boosted tax on nonqualifying HSA and Archer MSA distributions.

For tax years beginning after December 31, 2010 the additional tax on distributions from an HSA that are not used for qualified medical expenses is increased from 10% to 20% of the disbursed amount and for Archer MSA that are not used for qualified medical expenses the penalty is increased from 15% to 20%.

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Annual fee on drug manufacturers and importers

For tax years beginning after December 31, 2010 each manufacturer or importer with gross receipts from branded prescription drug sales engaged in the business of manufacturing or importing such drugs for sale to any specified government program or pursuant to coverage

under such program must pay an annual nondeductible fee. This fee will be credited to the Medicare Part B Trust Fund. Fee will be apportioned based on entities % of sales.

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Small employers may establish “simple Cafeteria plans”

For tax years beginning after December 31, 2010 small employers (average of 100 or fewer employees on business days during either of the two prior years) may provide employees with a simple cafeteria plan. Under this 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.

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Timeline of Health Care ReformChanges taking place in 2012 :

Information reporting required for payments to corporations.

For payments made after December 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 the IRS.

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Timeline of Health Care ReformChanges taking place in 2013 :

Increased Medicare tax for high-earning workers and self-employed taxpayers

For tax years beginning after December 31, 2012, an additional 0.9% of Medicare tax applies to wages received with respect to employment in excess of: $250,000 for joint returns; $125,000 married taxpayers filing a separate return; and $200,000 in all other cases. The additional 0.9% also applies to self employment income in excess of the above figures. Employer’s only responsible for withholding on employee wages.

Example:

Mr. and Mrs. Jones have wages of $300,000 and $275,000 respectively.The Medicare withholding was $5,250 and $4,663 respectively and calculated as follows:

1. $300,000 X 1.45% + $100,000($300,000-$200,000 threshold) X 0.9% = $5,250.

2. $275,000 X 1.45% + $75,000($275,000-$200,000 threshold) X0.9% = $4,663.

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Changes taking place in 2013 (continued) :

On the joint return total wages are $575,000(less $250,000 joint threshold) which when multiplied by 0.9% create an additional tax of $2,925 less $1,575 already withheld makes an

additional amount of Medicare tax due of $1,350.

Should also be noted that the additional 0.9% is just employee tax, no employer contribution and in relation to self employment income tax the allowable above the line deduction does not include any portion of the 0.9% increase.

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Surtax on unearned income of higher income individuals

For tax years beginning after December 31, 2012, an unearned income Medicare contribution tax is imposed on individuals, estates and trusts. For an individual, the tax is 3.8% of the lesser of either (1) net investment income or (2) the excess of modified adjusted gross income (MAGI) over the threshold amount which are the same thresholds as described under the Medicare wage tax increase on prior slide. MAGI does not include tax exempt bonds, veteran benefits and excluded gain from the sale of a residence.

Example:

For 2013, a single taxpayer has net investment income of $100,000 and MAGI of $220,000. The taxpayer would pay a Medicare

contribution tax only on the $20,000 amount by which his MAGI exceeds his threshold amount of $200,000 since that is less than his net investment income of $100,000. Medicare contribution would be $20,000 X 3.8% = $760. Potentially taxpayers could get hit with Medicare tax on excess wages as well as investment income.

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Net investment income is defined as the sum of gross income from interest, dividends, annuities, royalties and rents (unless derived from active trade or business which taxpayer is active participant in and not passive).

Higher threshold for deducting medical expensesFor tax years beginning after December 31, 2012, unreimbursed

medical expenses will be deductible by taxpayers under age 65 only to the extent they exceed 10% of adjusted gross income (AGI). For taxpayers reaching the age of 65 before the close of tax year, a 7.5% floor applies through 2016. Starting with tax years ending after December 31, 2016 10% threshold applies to all.

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Dollar Cap on contributions to health FSAs

For tax years beginning after December 31, 2012, for a health FSA to be a qualified benefit under a cafeteria plan, the maximum amount

available for reimbursement cannot exceed $2,500.

Deduction eliminated for retiree drug coverage

For tax years beginning after December 31, 2012, the amount otherwise allowable as a deduction for retiree prescription drug expenses will be reduced by the amount of the excludable subsidy payments received.

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Fee on health plansFor each policy year ending after September 30, 2012, each

specified health insurance policy and each applicable self- insured health plan will have to pay a fee equal to the product of $2 ($1 for policy years ending during 2013) multiplied by the average number of lives covered under the policy. Issuer of policy is liable for fee.

$500,000 compensation deduction limit for health insurance issuers

For tax years beginning after December 31, 2012 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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Excise Tax on medical device manufacturers

For sales after December 31, 2012, a 2.3% excise tax applies to sales of taxable medical devices intended for humans. The excise

tax, paid by the manufacturer, producer, or importer of the device, won’t apply to eyeglasses, contact lenses, hearing aids and any other medical device determined by IRS to be of a type that is generally purchased by the general public at retail for individual use.

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Larger employers not offering affordable health insurance coverage must pay penalty

For months beginning after December 31, 2013, a large employer (generally one with at least 50 full-time employees) that (1) doesn’t offer health care coverage for all its full-time employees, (2) offers minimum essential coverage that is unaffordable (coverage with a premium required to be paid by the employee that is more than 9.5% of the employee’s household income, as defined for purposes of certain premium tax credit rules), or (3) 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% must 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.

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Health Care Exchanges:Employers will have a choice of four plans if they go to the exchanges:

Bronze, Silver, Gold and Platinum and costs covered are 60%, 70%, 80% and 90% respectively. Minimum coverage standard is 60%. Penalties below apply to companies with 50 or more employees.

Penalties The most onerous penalty hits companies that offer no health insurance coverage and have at least one person receiving a federal subsidy to buy insurance from the exchanges. $2,000 times number of full time employees (defined as working at least 30 hours per week) with the first 30 employees being backed out of formula. For the other penalties it is $3,000 per employee not enrolled less the first 30.

It should be noted that many states may limit the employers that can purchase through the exchange to companies with 50 or fewer on their payrolls, but starting with 2017 it appears states will start allowing firms with more than these amounts to participate.

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Example:

Company A has 55 employees with no coverage for any of them. Two of employees have purchased from the Health Exchange. The penalty is as follows: 25 X $2,000=$50,000(55 employees less 30 = 25).

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Individuals not carrying health insurance face a penaltyFor tax years beginning after December 31, 2013, nonexempt U.S.

citizens and legal residents must pay a penalty if they do not maintain minimum essential coverage. There are several exceptions to penalty: (1) Lower income individuals where household income is below their filing thresholds or premiums more than 8% of the individuals household income for the tax year;(2) Prisoners;(3) Undocumented aliens;(4)Health care sharing ministry members;(5) Religious conscience objectors.

PenaltiesThe per adult annual penalty phases in at $95 for 2014 and $325 for 2015. For years after 2016, amount will be the greater of 2.5% of

household income over income tax filing threshold, or (2) $695 per adult.

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Some employers must offer “free choice” vouchers for basic coverage:

Effective for periods after December 31, 2013 for employers offering minimum essential coverage and paying a portion of it must provide qualified employees with a free choice voucher whose value can be applied to purchase of a health plan through an Insurance Exchange.

A qualified employee are those who do not participate in the employer plan; whose required contribution for employer sponsored minimum coverage (if they participate) exceeds 8%, and whose total income does not exceed 4 times the poverty line for the family($88,000 for a family of four).

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New information reporting of employer provided health coverage

For periods beginning after December 31, 2013, employers who provide minimum essential health care coverage are required to file a return reporting such coverage as well as the:

Name, address & TIN of the primary insured;Name, address and TIN of each other individual

obtaining coverage under the policy;The dates during which the insured was covered under minimum essential coverage during the calendar year; and

Such other information as the Secretary of the Treasury may requireCould be additional information for large employers required (50 or more employees).

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Excise tax on health insurance providers

For calendar years beginning after December 31, 2013, an annual fee applies to health insurance providers.

Accelerated estimated tax payments for large corporations

The estimated tax payment due for large corporations (1 billion of assets at end of previous year) in July, August, or September 2014 is increased from 157.75% to 173.50% of the payment otherwise due and next payment appropriately reduced.

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Excise tax applies to high-cost employer provided health insurance coverage:

For tax years beginning after December 31, 2017, a 40% nondeductible excise tax will be levied on insurance companies and plan administrators for employer-sponsored health coverage to the extent that annual premiums exceed $10,200 for single coverage and $27,500 for family coverage this assumes a 55% increase in health coverage over next 8 years). For 2019 thresholds will be indexed for inflation plus one percentage point and in 2020 and beyond they will be indexed to just inflation. Thresholds will be higher for retired people age 55 and older who are not eligible for Medicare and for employees in high risk professions (ex; law enforcement). The excess will be taxed at 40%.

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Timeline of Health Care ReformMiscellaneous issues:

• Concern on spike in premiums between now and 2014• Wellness Programs• Waiting periods• Preexisting conditions• Lifetime limits• Long Term Care• Other Provisions

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The Hiring Incentives to Restore Employment Act (HIRE Act)

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HIRE ActThe HIRE Act provides relief from the employer share of OASDI taxes for employers that hire unemployed workers. The relief applies to wages paid beginning March 19, 2010. Wages that qualify are for services performed in a trade or business for the qualified employer or for a qualified employer that is tax exempt under Code Section 501(a) with the work being related to the activities function.

Worker must be a qualified worker which is defined as:

Begins employment with a qualified employer after February 3, 2010 and before January 1, 2011. (Wages eligible are only from Mar 18 on). Certifies by signed affidavit, under penalties of perjury, that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the individual begins employment with the qualified employer (From W-11) Isn’t being hired to replace another employee unless that employee separated from employment voluntarily or for cause.

Cannot be related to employer (except spouse) Also owning more than 50% of entity and hiring related parties will not qualify.

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HIRE Act

Special Rules for first calendar quarter of 2010

The payroll tax holiday doesn’t apply for wages paid during the first calendar quarter of 2010 - will be incorporated into second

quarter. Credit cannot exceed $6,621,60 (6.2 % of $106,800 base for 2010).

Credit not applicable for government entities except a public institution of higher education.

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HIRE ActRetained Worker Credit

A retained worker is defined as qualified individual:

Who was employed by the taxpayer on any date during the tax year, who was so employed by the taxpayer for a period of not less than 52 consecutive weeks and whose wages for that employment during the last 26 weeks of the period equaled at least 80% of the wages for the first 26 weeks of that period.

Credit is the lesser of:

$1,000 per employee; or6.2 % of the wages for the 52 week period

Credit taken on entity return- Business Credit

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HIRE Act

Section 179 expensing set at $250,000 with $800,000 cap

through December 31, 2010.

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Small Business Jobs Act

• Bonus Depreciation extended to 2010

• Code Section 179 expensing enhanced for 2010 and 2011– $500,000 max- additions capped at 2 million– Qualified leasehold improvements qualify as

well, but only up to $250,000 with same cap

• S Corporation BIG period adjusted

• Allowance on start up expenses raised

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Future

• Tax rates

• Tax extenders

patient protection and affordable care act, health care and education reconciliation act of 2010,...

Documents

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affordable care act

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pc credit

employment act

education reconciliation

parents health plan

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