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Presented by Cherry, Bekaert & Holland, L.L.P. Healthcare Reform Act: How Does Recent Legislation Impact Your Business?. Cherry, Bekaert & Holland, L.L.P. 1180 West Peachtree Street, Suite 1400 Atlanta, Georgia 30309 404.209.0954  Matthew MayAnne Alvarez AuditTax - PowerPoint PPT Presentation

Text of Presented by Cherry, Bekaert & Holland, L.L.P

A Pulse on SOX 404The Firm of Choice.
Atlanta, Georgia 30309
Presenter – Matthew May
Matthew is a Certified Public Accountant and Senior Audit Manager with over 10 years of experience. Based in Cherry, Bekaert and Holland’s Atlanta practice, Matthew manages financial statement audits and consulting projects for publicly and privately held clients across a variety of industries, including technology, manufacturing, retail, and communications. His clients have ranged from venture backed development stage companies to multi-national public companies with revenues up to $500 million revenue.
Matthew has extensive experience with SEC matters, financial reporting, internal control over financial reporting, operational accounting, and venture and private equity backed entities. He is experienced in a variety of transactions including initial public offerings; secondary offerings; debt, venture capital, and private equity financings; and mergers and acquisitions.
During his career Matthew was the Vice President of Finance and Controller for a communications company for four years. He directly supervised all accounting functions including financial reporting, accounts payable, accounts receivable, purchasing, fixed assets, payroll, general ledger, and financial planning and analysis.
Matthew received his Bachelor of Business Administration degree with a major in Accounting from Baylor University. He is a member of the American Institute of Certified Public Accountants. Matthew also leads internal trainings on a variety of topics with audiences ranging from first year staff to partners.
The Firm of Choice.
Presenter – Anne Alvarez
Anne is a Certified Public Accountant and a Tax Senior in the Atlanta office of Cherry,
Bekaert and Holland LLP. She sits on the Firm’s Legislative Liaison Board, which is charged
with staying on the cutting edge of newly enacted and proposed tax law. She provides
compliance and consulting advice to a variety of clients, and is the Firm’s lead expert on
TaxStream implementation and use for ASC 740 Tax Provisions (f.k.a. FAS 109).
Prior to joining CB&H, Anne spent time in industry managing tax projects for REITs, as well
as spending two years at PricewaterhouseCoopers LLP in Atlanta.
Anne graduated from the Georgia Institute of Technology with highest honors. She is a
member of both the American Institute of Certified Public Accountants, as well as the Georgia
Society of Certified Public Accountants.
The Firm of Choice.
New legislation
The Patient Protection and Affordable Care Act (PPACA) – enacted March 23, 2010
Health Care and Education Reconciliation
Act of 2010 (RECON) – enacted March 30, 2010
The Firm of Choice.
Pre-existing conditions
High risk individuals
No lifetime limits
Insurer Regulations on Providing Coverage
New requirements are effective for plan years beginning on or after 9/23/2010
Insurers to cover children regardless of preexisting condition
Prohibits new health plans in all markets plus grandfathered group health plans from denying coverage to children with preexisting conditions.  Effective 6 months after enactment.  (Beginning in 2014, this prohibition would apply to all persons.)
Plans must provide coverage for certain preventative services such as immunizations and screens, mammograms, etc.
Access to high risk individuals - Provides access to affordable insurance for Americans who are uninsured because of a preexisting condition through a temporary subsidized high-risk pool.  Effective in 2010.
Ends rescissions - Bans insurance companies from dropping people from coverage when they get sick.  Effective 6 months after enactment.
Adult children to age 26 - Requires new health plans and certain grandfathered plans to allow young people up until their 26th birthday to remain on their parents’ insurance policy, at the parents’ choice.  Effective 6 months after enactment.
However, a child who is under the age of 27 is a dependant of a taxpayer for purposes of the exclusion for reimbursements for medical care expenses under an employer-provided accident of health plan and other purposes related to medical benefits
No lifetime limits on coverage - Prohibits health insurance companies from placing lifetime caps on coverage.  Effective 6 months after enactment.
Adoption Credit Extended
Credit for child adoption increased to $13,170 in 2010, indexed for inflation in 2011 (refundable in 2010 and 2011)
Credit made refundable
Tax Credits for Small Businesses Offering Health Insurance (2010 – 2013)
Economic Substance Doctrine Codification
-The basis for a transaction’s economic substance now exists only if a taxpayer both changed their economic position in a meaningful way (apart from income tax effects) and had substantial non-federal income tax purpose for engaging in the transaction.
- Change in definition is immediate – effective for all transactions entered into after March 30, 2010
- Violations are subject to stiff, automatically-applied penalties to 20% or 40%, depending on the underlying transaction and level of disclosure
Underpayment Penalty
The accuracy-related penalty (20%) has been expanded to include understatements attributable to any disallowance of claimed tax benefits be reason of a transaction lacking economic substance
Penalty is 40% for an underpayment attributable to a “non-disclosed non-economic substance transaction” – transaction whose relavant facts affecting the tax treatment are not adequately disclosed in the returnor in a statement attached to the returns
Tax Credit for Investments in New Health Care Therapies
-A two-year temporary credit available for investments in new therapeutic discovery projects in 2009 and 2010
Tax Credits for Small Businesses Offering Health Insurance
Offers tax credits to small businesses to make employee coverage more affordable.  Tax credits of up to 35 percent of premiums will be available to firms that choose to offer coverage.  Effective beginning calendar year 2010.  (Beginning in 2014, the small business tax credits will cover 50 percent of premiums.)
Limited to 35% of what the Secretary of Health and Human Services determines is the average cost of premiums for the small group market of that state
“Small” business – no more than 25 full-time employees (including full-time equivalents based on total part-time hours), and average compensation is not greater than $50K
Credit phased out from 10 employees to 25, and from $25K average compensation to $50K
To qualify, employer must pay for at least one-half of the cost of health insurance premiums for the coverage of participating employees; must pay on behalf of employees enrolled in qualified plan; must be uniform percentage for all participating employees
Trusts and Estates must apportion the credit between itself and its beneficiaries based on income allocable to each
Credit is part of General Business Credit – may be carried back one year and forward 20
Credit is allowed against AMT – effective for credits determined starting in 2010, and to carrybacks of such credits
The Firm of Choice.
3
If you are a small employer (business or tax-exempt) that provides health insurance coverage to your employees, determine if you may qualify for the Small Business Health Care Tax Credit by following these three simple steps:
Determine the total number of your employees (not counting owners or family members):
+
Full-time equivalent of part-time employees: (Calculate the number of full-time equivalents by dividing the total annual hours of part-time employees by 2080.)
= total employees
If the total number of employees is fewer than 25 GO TO STEP 2
Calculate the average annual wages of employees (not counting owners or family members):
Take the total annual wages paid to employees:
÷
Divide it by the number of employees from STEP 1: (total wages ÷ number of employees)
= average wages
1 2
You pay at least half of the insurance premiums for your employees at the single (employee-only) coverage rate, then
you may be able to claim the Small Business Health Care Tax Credit. Find out more information at IRS.gov
The Firm of Choice.
Excise Tax on Indoor Tanning Services
Excise Tax on Indoor Tanning Services
- 10% tax levied on indoor tanning services performed on or after July 1, 2010
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Nonqualified HSA & MSA Distributions Penalty Increases
Medical Expense Definition Changes
• Definitions for qualified medical expenses altered as they relate to FSAs, HSAs, and Archer MSAs (certain medications exempt)
Distributions for medicine qualified only if for prescribed drug or insulin (prescription for over-the-counter drugs allowed)
Nonqualified HSA & MSA Distributions Penalty Increases
• Penalty increases from 10% to 20% for HSAs
• Penalty Increases from 15% to 20% for MSAs
The Firm of Choice.
Employers Must Report Health Care Plan Values on W-2
Employers Must Report Health Care Plan Values on W-2
• Employers must disclose the aggregate cost of each employee’s health care benefits on his or her W-2 form
The Firm of Choice.
Pharmaceutical Industry – Annual Fee
IRS to share certain taxpayer information with the SSA and HHS
Annual Fee Imposition on Pharmaceutical Industry
• Manufacturers and importers of pharmaceuticals owe non-deductible fee, starting at $2.5b, to be apportioned by market share
• Companies with no more than $5m in branded sales are exempt
IRS to share certain taxpayer information with the SSA and HHS
In connection with the Medicare Part D beneficiary premium increases, the IRS has broader authority to disclose income information to the Social Security Administration (SSA)
Upon written request, the IRS is permitted to disclose to the Department of Health and Human Services (HHS) certain return information to verify cost sharing reduction or premium tax credit amounts and facilitate eligibility determinations for other programs
The Firm of Choice.
Corporate Information Reporting
• Businesses paying $600 or more annually for property and services must file informational returns with provider and with IRS
The exception to the general information reporting requirement for payments of $600 or more made to corporations in the course of a trade or business is eliminated
Penalties for failure to file, failure to furnish payee statements, and failure to comply with various reporting requirement apply
The Firm of Choice.
Medicare Tax on Investment Income for High-Income Individuals, Estates and Trusts
FSA Contributions Limited
Medicare Tax for High-Income Individuals Increases
• 0.9% increase on wages (from 1.45% employee portion to 2.35%) and net earnings from self-employment (from 2.9% to 3.8%)
• Applied to earned income over $200K for individuals, $250K for married filing joint, $125K for married filing separately
Unlike the general 1.45% Medicare tax on wages, the additional 0.9% tax is on the combined wages of the employee and the employee’s spouse in the case of a joint return (the employer is permitted to disregard the amount of wages of the employee’s spouse for withholding obligation requirements)
The employee is directly liable for any amount due and not withheld by the employer
Underpayment of estimated tax penalty may be applied
Medicare Tax on Investment Income for High-Income Individuals
• 3.8% contribution on unearned income (e.g. interest, dividends, royalties, rents, any income from a passive trade or business, net gain from sale of property)
• Applies to MAGI over $200K for individuals, $250K for married filing joint, $125K for married filing separately
excludes retirement accounts and any distributions from a qualified employee benefit plan
Also applies to Estates and Trusts – must pay 3.8% tax on lesser of undistributed net investment income from a stock and bond portfolio
Exclusions – 3.8% tax does not apply to nonresident aliens; or certain trusts (religious, charitable, scientific, literary, educational, fostering national or international sports competitions, for prevention of cruelty to children or animals)
FSA Contributions Limited
Modification of Itemized Deduction for Medical Expenses
Raises the threshold from 7.5% of AGI to 10% of AGI
Individuals 65 and older (and their spouses) temporarily exempt from the increase – through 2016 (increases for 2017)
Does not change AGI floor for purposes of computing AMT – remains at 10%
The Firm of Choice.
Executive Compensation Deduction Limited
Charitable Hospitals – new requirements
Excise Tax on Medical Device Sales
• 2.3% excise tax added to medical device manufacturers, producers and importers
Applies to any device regulated by the FDA and intended for humans
• Excludes retail items such as eyeglasses, hearing aids, and contact lenses
Only applies to final retail sales – not items for further manufacture or re-sale, or for items to be exported
Executive Compensation Deduction Limited
Deduction for Medicare Part D Ends
• No subsidy expense deductions for qualified employers
Additional Requirements for Charitable Hospitals
Four additional requirements have been imposed on charitable hospitals that must be met in order for the hospitals to maintain their IRS Sec 501(c)(3) tax-exempt status
Requirements apply to tax years beginning after March 23, 2012
The Firm of Choice.
Pay penalty, a.k.a. “Shared Responsibility Payment”
Certain individuals are exempt from the penalty and/or from carrying coverage
Premium Assistance Credit
Administration – penalties, levies, and informational returns
Health Insurance Market Reforms - Effective for plan years beginning on or after January 1, 2014
Limits range of premiums an issuer can charge
Guaranteed availability of coverage
Nondiscrimination for health status and for health care providers
Minimum Essential Coverage – for purposes of the penalty, coverage under any of the following:
Government sponsored program – e.g. Medicare, Medicaid, CHIP, TRICARE, veteran’s program
Eligible employer-sponsored plan
Individual market plan
Grandfathered plan – a group health plan in effect on 3/23/2010
Other coverage – recognized by the Secretary of Health and Human Services
Also must carry health insurance on your dependents (which can now be children under the age of 27)
Penalty is included with the taxpayer’s income tax return for the year that includes the month for which the penalty is imposed
Spouses filing a joint return are jointly liable for the penalty imposed on either spouse
Exempt from carrying coverage:
Undocumented aliens
Health care sharing ministry members (of a tax-exempt org that has had a HCSM in existence continually since 12/31/1999)
Religious Conscience – adherents of the established teachings of a recognized religious sect that opposes accepting the benefits of any private or public insurance for medical care)
Exempt from Penalty:
Unaffordable coverage - if required contribution is more than 8% of household income
Filing threshold – household income is below their income threshold for filing income tax returns
Native Americans – member of Indian tribe as defined by IRC Sec 45A(c)(6)
Short lapses – penalty does not apply until a taxpayer goes 3 consecutive months w/o adequate coverage, but it is then imposed from the beginning of that 3 month period
Hardships – must be determined by the Secretary of Health and Human Services
Dependents - exempt from paying the penalty; it is imposed on the taxpayer claiming the dependency exemption
Individuals outside the US (US territories are considered outside the US)
Premium Assistance Credit – taxpayers with household income between 100% and 400% of federal poverty level can qualify for a refundable health insurance premium assistance credit
Administration:
Taxpayers are not subject to criminal prosecution or penalty for failure to timely pay the penalty
IRS cannot use liens or levies to collect any unpaid penalty
Every person who provides minimum essential coverage to an individual during the calendar year must file information returns with the IRS
Amount of Penalty – lesser of:
The sum of the monthly penalty amounts for the tax year – defined as 1/12 of the greater of:
Flat dollar amount – sum of the applicable dollar amounts for each applicable individual who lacks minimum coverage – up to 300% of the applicable dollar amount
Year 2014 - $95
Year 2015 - $325
Year 2016 - $695
Or, the applicable percentage of income
Year 2014 – 1% of the excess of the taxpayer’s household income over the taxpayer’s filing threshold
Year 2015 – 2% of the excess of the taxpayer’s household income over the taxpayer’s filing threshold
Year 2016 and beyond – 2.5% of the excess of the taxpayer’s household income over the taxpayer’s filing threshold
Or, the amount of the national average premium for qualified health plans that:
Offer a bronze-level of coverage through an Exchange
Provide coverage for the taxpayer’s family size
Are offered through Exchanges for that tax year
The Firm of Choice.
Penalty on Large Employers for not Providing “Minimum Essential Coverage”
Penalty on Large Employers Offering Coverage, but with Employees Receiving Credits from State Exchange Offered Plans
Employer Penalty for Not Providing Coverage (a.k.a. Assessable Payment)
• Employers with more than 50 full-time (non-seasonal) employees could pay up to $2,000 per employee annually, after the first 30 employees
Must also offer coverage to employees’ dependents
Minimum essential coverage defined the same as the individual carrying requirement
No penalty due on those employees who are provided with Free Choice Vouchers
Penalty on “Large” Employers Offering Coverage, but with Employees Receiving Credits from State Exchange Offered Plans (a.k.a. Assessable Payment)
Employer with more than 50 full-time (non-seasonal) employees offers its employees and their dependents opportunity to enroll in minimum essential coverage, but
Has at least one full-time employee instead using a plan through a Health Insurance Exchange, and is receiving a premium tax credit or cost-sharing reduction
Penalty is up to $3,000 per such employee annually
Other Items to Note When Calculating Penalty:
Total penalty is limited $2,000 per employee annually, after the first 30 employees
In determining employer size, all persons treated as a single employer under the aggregation rules (IRS Sec 414) are treated as one employer
Number of full-time employees is based on preceding tax year, including full-time equivalents (using total part-time employee hours)
While costs to provide employees with coverage are tax deductible, the above assessable payments (penalties) are not
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Free Choice Vouchers
Small Employer Health Insurance Credit
Corporate Estimated Payments
Free Choice Vouchers
Employer who offers coverage, but has employees not covered and meet certain qualifications, must provide vouchers to those employees
Qualifications – not participating in employer plan, employee income is not more than 400% of Federal poverty level, and employee share of plan cost is between 8% and 9.8% of household income
Voucher amount is equal to the cost the employer would have paid if the employee was participating in the employer’s plan
Employee is credited this voucher amount towards his/her cost of buying a plan in the Exchange; employer must pay this voucher amount directly to the Exchange
Exclusion from income for employee
Deduction allowed for employer
American Health Benefit Exchange and Small Business Health Options Program (SHOP Exchange)
By 01/01/2014, each State must establish these to provide qualified individuals and qualified small business employers access to qualified health plans
Will have four levels of coverage available – bronze, silver, gold, and platinum
Small Employer Health Insurance Credit
Small employer may claim the credit for two additional years after 2013 – credit is increased to 50% of the employer’s costs to provide coverage
Starting in 2014, small employer must participate in an insurance exchange in order to claim the credit
Same qualifications on size, at least 50% of costs paid by employers, and same phase outs of credit
Limited to 50% of what the Secretary of Health and Human Services determines is the average cost of premiums for the small group market of that state
Corporate Estimated Payments
• Corporations with assets over $1b (determined as of the end of the previous year) must increase any estimated payment required to be made in July, August, or September of 2014
Several other laws previously increased the % due at this time - in total, 173.5% of the amount otherwise due must be paid
The next required installment if estimated tax is reduced accordingly
Federal Government’s fiscal year begins on October 1st – this shifts revenues from one fiscal year to another in order to meet budgetary requirements
The Firm of Choice.
2014 – Corporate Reporting
Employers Must Report Health Coverage Information Annually to the Secretary of the Treasury and to Employees
Employers Must Report Health Coverage Information
• Must file calendar year, informational returns with the IRS including info about employer, employee and dependent information, waiting period, coverage plans, premium amounts, and amounts of any cost-sharing reductions or premium assistance tax credits
Employer must also furnish each employee a copy of their information being provided to the IRS, by January 31
Penalties for failure to file, failure to include correct or complete information, and failure to furnish statements to employees apply
The Firm of Choice.
Annual Fee Imposition on Health Care Provider Industry
Annual Fee Imposition on Health Care Provider Industry
Providers of insurance for and health risk of any individual who is a US citizen, US resident, or located in the US
Does not include long-term care, disability, fixed indemnity insurance or Medicare supplemental health insurance
• Health care providers pay non-deductible fee of $8B in 2014, increasing each year to $14.3B in 2018 (then indexed for inflation)
• Apportioned by market share, certain groups exempt
Covered entities must report their net premiums written each year to the Secretary of the Treasury – failure to report penalties are $10K plus $1K per day; accuracy-related penalties also apply
The Firm of Choice.
Health Insurer Excise Tax on High-Cost Plans
• 40% non-deductible excise tax imposed for plans over $10,200 individual, $27,500 family (higher limits for retirees)
More generous thresholds for high risk professions
The Firm of Choice.
Georgia State Senate Bill 411:
prohibits the State from requiring that individuals participate in a public or private health plan
states that no business or individual would be liable to fines for not carrying or offering health insurance 
Federal Act requires each State to establish an Exchange by January 1, 2014
 
*Georgia's Governor, Sonny Purdue, has signed into law State Senate Bill 411, which prohibits the State from requiring that individuals participate in a public or private health plan.  It also states that no business or individual would be liable to fines for not carrying or offering health insurance.  Since Federal law trumps State law, at first glance it would seem this would have little effect.  However, the provisions of the Federal Act surrounding the various Health Insurance Exchanges necessary for the purchase of federally mandated coverage state that it is the responsibility of each State to establish these by 01/01/2014.  This means Georgia may choose not to comply, and not establish such Exchanges in the State.
The Firm of Choice.