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Aordable Care Act TaxProvisions and the IRS

On March 23, 2010, thePresident signed into law thePatient Protection and AordableCare Act which is also known bythe short title Aordable Care

Act (ACA). The new law, later

amended by the Health Careand Education Reconciliation Act(HCERA) on March 30, 2010,enacts signifcant changes to

Americas health care system.

The IRS administers the various taxlaw provisions, which take eectover the next several years. TheDepartment o Health and HumanServices is the lead agency orhealth insurance and health care

policies under the new law.Publication 4894 (Rev. 11-2011) Catalog Number 55911UDepartment of the Treasury Internal Revenue Service www.irs.gov

For additional inormation:Visitwww.irs.govor the most up-to-date inormation onthe Aordable Care Act tax provisions.

For tips, act sheets, questions and answers, videos andmore, check the Aordable Care Act o 2010: NewsReleases, Multimedia and Legal Guidance page on www.irs.gov. IRS continues to issue the l egal guidance and publiccommunications taxpayers need to prepare or health care

tax changes. You can always fnd out the latest updateson IRS.govand now you can FollowTwitter. You can fndconsumer updates about health insurance and health carepolicy provisions on the HHS websites HealthCare.gov orMedicare or Medicare changes atMedicare.govand theSpanish-languageCuidadoDeSalud.Gov.

Informacin en Espaol: Disposiciones del Acta delCuidado de Salud de Bajo Precio

Other helpul websites: www.medicare.gov www.healthcare.gov

www.cuidadodesalud.gov - Informacin en Espaol

Free Tax Return Assistance:Volunteer Income Tax Assistance (VITA) and Tax Counselingor the Elderly (TCE) sites oer ree tax return preparationto individuals with low to moderate income. To fnd reetax help near you, call IRS at1-800-906-9887 or AARPTaxAide at1-888-227-7669 .

Small Business Health Care Tax CreditThis credit helps small businesses and small tax-exemptorganizations aord the cost o covering their employeesand is specifcally targeted or those with low- andmoderate-income workers. For 2010 through 2013 it isworth up to 35 percent o premium costs or small employersand up to 25 percent o premium costs or tax-exemptemployers. For tax years beginning ater December 31,

2013, this credit increases to 50 percent or small employersand 35 percent or tax-exempt employers. In general, thecredit is available to small employers that pay at least halthe cost o single coverage or their employees.

Employer-Provided Health Coverage Not Taxable; Reporting is Voluntaryor All Employers or 2011 and orSmall Employers or 2012Starting in tax year 2011, the ACA requires employersto report the value o the health insurance coverage they

provide their employees on each employees annual FormW-2. To give employers more time to update their payrollsystems, IRS Notice 2010-69 made this requirement optionalor all employers or 2011. This applies to the 2011 FormsW-2 generally given to employees in January 2012. IRSNotice 2011-28 also provided that or 2012 the reportingrequirement was optional or employers fling ewer than250 2011 Forms W-2 and will not be required o thosesmall employers until urther guidance is issued. Notice2011-28 includes inormation on how to report, whatcoverage to include and how to determine the cost o thatcoverage.

The 2011 Form W-2 is available on www.irs.gov. This isthe Form W-2 that most employees will receive in early2012. The orm includes the codes that employers may useto report the cost o coverage under an employer-sponsoredgroup health plan.

The revised Forms W-2 will show employees the value otheir health care benefts so they can be more inormedconsumers. The amount reported does not aect tax liability;the value o the employer contribution to health coverageremains excluded rom an employees taxable income.

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Tax Law Changes You Should Know

About NowThe tax provisions in the ACA aect nearly every individualand employer. Below are some changes that may impactyou in the coming year. Please note that this list does notsummarize every tax provision in the ACA.

Health Coverage or Older ChildrenSince March 30, 2010, health coverage or an employeeschildren under 27 years o age is generally tax-ree to theemployee. This expanded health care tax beneft applies tovarious work place and retiree health plans. These changesimmediately allow employers with caeteria plans plansthat allow employees to choose rom a menu o tax-reebeneft options and cash or taxable benefts to permitemployees to begin making pre-tax contributions to pay orthis expanded beneft. This also applies to sel-employedindividuals who qualiy or the sel-employed healthinsurance deduction on their ederal income tax return.

Expanded Tax Beneft to HealthProessionals Working in UnderservedAreasSince 2009, health care proessionals who receive studentloan relie under state programs that reward those whowork in underserved communities may qualiy or an annualtax cut going orward. I you are a health care proessionalwho receives orgiveness or your student loans in exchangeor working in an underserved community, you may nowqualiy or tax relie or the portion o the loan that wasorgiven. Previously, the amount o the orgiven loan wasconsidered income and was subject to tax. Consult your

state loan program ofce to determine whether the programis covered by the ACA. You may submit an amended returnto claim this tax beneft or 2009 and 2010.

Expanded Adoption Credit Available in Tax Year 2011You may qualiy or the adoption credit i you adopted orattempted to adopt a child and paid qualifed expensesrelating to the adoption. The maximum amount o the taxcredit is $13,360 or 2011. For a domestic adoption, youmay be able to claim the credit even i the adoption doesnot become fnal. I you adopt a special needs child, youmay qualiy or the ull amount o the adoption credit eveni you paid ew or no adoption-related expenses.

For 2011, you may not take the ull amount o theadoption credit i your modifed adjusted gross income(MAGI) is $185,210 or more; the credit is completelyphased out i your MAGI is $225,210 or more.

The ACA also makes the credit reundable, meaning thateligible taxpayers can receive the credit even i they oweno tax or 2011. In general, the credit is based on yourpayment o reasonable and necessary expenses relatedto a legal adoption, including adoption ees, court costs,attorneys ees and travel expenses. Income limits and otherspecial rules apply.

I you are eligible or the credit, in addition to flling outForm 8839, Qualifed Adoption Expenses, you mustinclude with your 2011 tax return one or more adoption-related documents. See the Instructions to Form 8839 oradditional inormation.

The documentation requirements, designed to ensurethat taxpayers are eligible to properly claim the credit,mean that taxpayers claiming the credit will have to flepaper tax returns. Normally, it takes about three weeks toget a reund claimed on a complete and accurate paperreturn where all required documents are attached. The IRSencourages taxpayers to use direct deposit to speed theirreund.

Eligible taxpayers claiming the credit will still be able touse IRS Free File to prepare their returns, but the returnsmust be printed out and mailed to the IRS, along with allrequired documentation.

Changes to Healthcare SavingsProgramsSince Jan. 1, 2011, over-the-counter drugs, likenonprescription pain relievers, are reimbursable throughhealthcare savings programs, only i the OTC drugsare prescribed. This means that a distribution rom ahealthcare savings program account or an OTC drug willbe tax-ree only i you have a prescription. Tax-avoredhealthcare programs include Health Savings Accounts,

Archer Medical Savings Accounts, Health FlexibleSpending Arrangements, and Health ReimbursementArrangements.

The change does not aect insulin, even i purchasedwithout a prescription, or other health care expenses suchas medical devices, eye glasses, contact lenses, co-paysand deductibles. IRS Announcement 2011-14 states thatmoney spent on breast pumps and other devices to assistlactation can qualiy as deductible medical expenses. Thismeans that FSA, HSA and HRA unds can now be used topay or these items.

In addition, i you have an HSA or an Archer MSA,distributions or expenses that are not qualiying medical

expenses, including over-the-counter medicines and drugspurchased without a prescription, will be included in yourgross income and subject to an additional 20% tax. Theincome tax and additional tax are reported on Form 8889or an HSA distribution and on Form 8853 or an ArcherMSA distribution. You complete these orms and attachthem to your Form 1040 when you fle your 2011 incometax return in 2012. Distributions rom an HSA or anArcher MSA are not included as taxable wages and do notaect your Form W-2.

Excise Tax on Indoor Tanning ServicesA tax applies to indoor tanning services paid or aterJune 30, 2010. The tax is 10% o the amount paid or the

services. Indoor tanning service means a service employingany electronic product designed to incorporate one ormore ultraviolet lamps and intended or the irradiation oan individual by ultraviolet radiation, with wavelengthsin air between 200 and 400 nanometers, to induce skintanning. The term does not include phototherapy serviceperormed by, and on the premises o, a licensed medicalproessional (such as a dermatologist, psychologist, orregistered nurse). Theres also an exception or certainphysical ftness acilities that oer tanning as an incidentalservice to members without a separately identifable ee.

The person who receives payment or indoor tanningservices must fle Form 720, Quarterly Federal Excise TaxReturn, and remit the tax or any quarter in which thatperson receives payment or the services. I the person whoreceives the payment does not collect the tax, that personliable or the tax itsel.