The 2010 Health Care Act as Amended by the 2010 Health Care Reconciliation Act
The 2010 Healthcare Act as Amended by the 2010 Healthcare Reconciliation Act (hereafter known as the "Act") passed on March 30, 2010. Most of the Act's provisions do not go into effect until 2011 and future years. This timing provides the opportunity to start planning now. The following is a summary of the Act's significant tax provisions as they apply to Business Enterprises and Individuals and the taxable years they are to take effect in.Business Enterprises
This Act does not require
employers to provide health insurance coverage, but charges a "play or pay" penalty to large employers (50 or more full-time employees) for not providing insurance, while offering tax incentives to small employers to encourage them to offer health insurance. A "grandfather" program, an employer plan in existence on March 23, 2010, does not have to change to comply with the Act's provisions. Plans will be at-risk to lose their "grandfather" status should they significantly cut benefits or increase out-of-pocket expenses for their insureds. Taxpayers losing their "grandfather" status could reasonably expect their health care costs to rise significantly. (The Act defines full time as working a minimum of 30 hours per week.)
- 2010 - A health insurance credit is available to small employers who purchase health insurance for their employees. A small employer is defined as one with less than 25 full time employees and average annual wages per employee of less than $50,000.
- 2012 - Employers will be required to report annually on their employee's W-2 the value of the employer provided health insurance.
- 2014 - Large employers (with 50 or more full-time employees) will be subject to a nondeductible penalty for failure to offer reasonable employer-sponsored health insurance. This provision is intended to keep employers from only offering high deductible and premium plans to its employees who cannot afford the coverage.
- 2018 - Insurers (generally insurance companies) must pay a 40% excise tax on high-cost health insurance coverage when compared to government-specified thresholds. Employers sponsoring health insurance will be responsible for this complex calculation, as well as reporting the required information to the insurer, so the insurer can remit their excise tax liability.
Starting in 2014, if you are not covered by Medicare or Medicaid, you will be required to have health insurance coverage or pay a penalty (with some exemptions). Employer-provided health insurance coverage satisfies the universal coverage requirement, so if you currently have coverage and wish to keep it, you can do so under a "grandfather" provision.
Non-Health Related Revenue Raisers
- 2010 - Children under age 27 qualify as a dependent for health insurance coverage (effective 3/30/10).
- 2011 - Over-the-counter drugs can no longer be purchased with health savings accounts (FSAs, HSAs, and HRAs), unless they are prescribed by a healthcare professional. The excise tax on distributions from health savings account that are not used for qualified medical expenses has increased from 10% to 20% and on Archer MSAs from 15% to 20%.
- 2013 - An "Unearned Income Medicare contributions" tax of 3.8% will be imposed on net investment income which includes: interest, dividends, royalties, rents, short & long term capital gains, passive activity gains, and income from a trade or business that is a passive activity. Estates and trusts will also be subject to the 3.8% unearned income Medicare tax, but likely simple and grantor type trusts will not be subject to it. The Act also includes a provision for additional Medicare payroll taxes of 0.9% (imposed on earned income of $200,000 or more for an individual and $250,000 or more for married taxpayers). Unfortunately, taxpayers with high wage income and investment income will find themselves subject to both additional taxes.
- 2012 - Payments of $600 or more to corporations and other entities will be required to be reported on a Form 1099. This item has been highly contested since its enactment. At this time it is still subject to heated debate & could ultimately be amended from its current form or repealed altogether.
As you can see many of the Act's provisions have deferred effective dates. This allows time for proper planning to comply with the impact of these provisions. Further, it allows opportunity for additional debate in Washington, D.C. regarding whether these provisions actually become effective, as is, or are ultimately amended or repealed.Special acknowledgement for contributions from Kim Casto, PKF Texas Tax Associate.