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Page 0September 5, 2013
Taxes Under The Affordable Care Act
Taxes Under
The Affordable Care Act
Presented by:
Heather L. Martin, CPA
PYA Senior Manager
Page 1September 5, 2013
Taxes Under The Affordable Care Act
For Self-employed Taxpayers
• Individual shared responsibility provisions
• Individual insurance marketplaces in place by
January 1, 2014
• Coverage through Medicaid expansion
• New Medicare assessment on net investment
income/net earnings
Page 2September 5, 2013
Taxes Under The Affordable Care Act
For Employers with Less than
50 Employees
• Small business health insurance credit (fewer
than 25 employees only)
• Small Business Health Options Program
• Employer notice to employees of new health
insurance marketplace
• Summary of benefits and coverage disclosure
rules
• Medical loss ratio rebates
Page 3September 5, 2013
Taxes Under The Affordable Care Act
For Employers with Less than
50 Employees
• Limits on FSA contributions
• Additional Medicare withholding on wages
• New Medicare assessment on NII
• 90-day maximum waiting period
• Transitional reinsurance program fees
• Workplace wellness programs
• Health insurance coverage reporting
requirements
Page 4September 5, 2013
Taxes Under The Affordable Care Act
Our Agenda –
Taxes Old and New
• Additional tax on wages/net investment income
• Individual tax changes
• Employer shared responsibility in detail
• Small employer health insurance credit
• Changes to health insurance plans
• Premium tax credit
• Payroll considerations
• Return disclosure
Page 5September 5, 2013
Taxes Under The Affordable Care Act
Additional .9% Tax on Wages
• For wages over $200,000 for single taxpayers or $250,000 for MFJ, an additional .9% tax applies.
• Employers are required to withhold this tax on any individual’s wages over $200,000 even if the tax will not ultimately be due.
• No employer match is assessed on this tax and no notification to the employee is required.
Page 6September 5, 2013
Taxes Under The Affordable Care Act
Example
• Husband and wife file MFJ. Husband’s wages $250k. Wife’s wages $150k. Husband has add’l withholding on $50k (or $450). Wife has no add’l withholding. Tax assessed on $150k (over the $250k MFJ threshold) (or $1,350).
• Choice to increase W-4 withholding or pay with income tax filing (but subject to estimated tax requirements).
• Employer subject to penalties if not withheld and possibly tax if not remitted by employee.
Page 7September 5, 2013
Taxes Under The Affordable Care Act
Additional 3.8% Tax on
Net Investment Income (NII)
• Tax calculated on the lesser of NII or the
excess of MAGI over the threshold amount
($250k MFJ, $200k single).
• Threshold amounts aren’t indexed for inflation
(i.e. more people over time will pay)
• NII includes non-business income from
interest, dividends, rents, net gains, and other
passive income.
Page 8September 5, 2013
Taxes Under The Affordable Care Act
3.8% NII Tax Continued
• Deductions apply that are allocable to NII.
• Tax subject to estimated tax requirements
• Rents from an active trade or business aren’t
subject to the NII tax. However rents
normally don’t rise to “active” level of activity.
– Consider real estate professional tests.
– Consider grouping of activities.
Page 9September 5, 2013
Taxes Under The Affordable Care Act
Net Gain Comments
• Net gains include sales of stocks, bonds, and
mutual funds, capital gain distributions, and gain
from the sale of real estate.
• Net gains cannot be reduced below zero in any
year (i.e. $3,000 capital loss doesn’t apply as
compared to regular income tax).
• If property disposed of is held in a trade or
business to which the NIIT doesn’t apply, NII
doesn’t include gain attributable to that property.
Page 10September 5, 2013
Taxes Under The Affordable Care Act
Individual Tax Changes
• New 39.6% tax bracket
– Taxable income over $450k MFJ and $400k single
– Previously at 35% tax rate
• Increase in capital gains rate to 20% (from 15%) for income that would otherwise be taxed at 39.6%
– NII would probably also apply
– 23.8% total tax rate overall possible when previous 15%
• Phase-outs of exemptions and itemized deductions (again)
Page 11September 5, 2013
Taxes Under The Affordable Care Act
Employer Shared Responsibility
• Responsibility begins at 50 or more full-time
equivalent (FTE) employees.
• Full-time employee – average of at least 30 hours
per week (e.g. 2 part-time 15-hour-per-week
employees = 1 FTE employee)
• Aggregate affiliated employers with common
ownership or those part of controlled group
• Generally, look to the prior calendar year for
employee count.
Page 12September 5, 2013
Taxes Under The Affordable Care Act
Employer Shared
Responsibility Continued
• Penalty assessed if at least 1 employee receives
a credit for exchange coverage.
• If employer offers coverage, penalty assessed
equals the lesser of:
– Number of its full-time employees minus 30 multiplied
by $2,000.
– Number of full-time employees who receive credits
for exchange coverage multiplied by $3,000
Page 13September 5, 2013
Taxes Under The Affordable Care Act
Employer Shared Responsibility
Continued
• If employer does not offer coverage, penalty
assessed equals the number of full-time
employees minus 30 multiplied by $2,000
• Employers not required to offer coverage to
part-time employees
• Reporting to monitor health plans offered to
employees – required in 2015.
Page 14September 5, 2013
Taxes Under The Affordable Care Act
Small Employer
Health Insurance Credit
• Originally applied for 2010-2013 at 35%
• Credit available if 25 or fewer employees and average annual wages does not exceed $50,000, and employer pays at least 50% of premiums.
• Full credit if 10 or fewer employees with wages no more than $25,000
• Owners, self-employed individuals excluded
• Changes in 2014 related to exchanges, credit amount (50%), and availability period (2 years)
Page 15September 5, 2013
Taxes Under The Affordable Care Act
Changes to
Health Insurance Plans
• Age of dependents on plan
• Other group health plan requirements
• PCORI fee
• Shared Individual Responsibility - 2014
• Shared Employer Responsibility
– Reporting required in 2015
– Reporting recommended for 2014
Page 16September 5, 2013
Taxes Under The Affordable Care Act
Premium Tax Credits
• Subsidizes the cost to families of health
insurance purchased through an Exchange.
• Available on a sliding scale basis for families
between 100% and 400% of the poverty line.
• Based on the percentage of income that the
cost of premiums represent (2% to 9.5%)
• Benchmark plan - applicable second lowest
cost silver plan
Page 17September 5, 2013
Taxes Under The Affordable Care Act
Payroll Considerations
• W-2 compliance
– “Aggregate cost of employer-sponsored health
coverage”
– If 250 or more W-2’s for the prior year, insurance
reporting is required for the current year
• Health FSA contribution limitation
– $2,500 in 2013
– Adjusted for inflation thereafter
Page 18September 5, 2013
Taxes Under The Affordable Care Act
Return Disclosure Forthcoming
• Upon request from HHS, IRS must disclose
return information of any taxpayer whose
income is relevant in determining the
following:
– Premium tax credit
– Eligibility for state programs
• Items that could be disclosed include filing
status, number of dependents, and AGI.
Page 19September 5, 2013
Taxes Under The Affordable Care Act
Items to Remember…
Page 20September 5, 2013
Taxes Under The Affordable Care Act
For Employers with
50 or more Employees
• W-2 reporting of aggregate health care costs
• Employer shared responsibility provisions
• Employer notice to employees of new health
insurance marketplace
• Health insurance coverage reporting
requirements
• Summary of Benefits and Coverage
Disclosure rules
Page 21September 5, 2013
Taxes Under The Affordable Care Act
For Employers with
50 or more Employees
• Medical loss ratio rebates
• Limits on FSA contributions
• Additional Medicare withholding on wages
• New Medicare assessment on NII
• 90-day maximum waiting period
• Transitional reinsurance programs fees
• Workplace wellness programs
Page 22September 5, 2013
Taxes Under The Affordable Care Act
Taxes Under
Affordable Care Act
Presented by:
Heather L. Martin, CPA
hmartin@pyapc.com
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