ACA, Health Insurance, and Taxes--A Full-Plate Discussion for Small Businesses

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



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



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



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



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



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.



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.



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.



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.



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.



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)



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.



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



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.



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)



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



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



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



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.



Items to Remember…



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



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



Taxes Under

Affordable Care Act

Presented by:

Heather L. Martin, CPA

[email protected]

Health & Medicine

ACA, Health Insurance, and Taxes--A Full-Plate Discussion for Small Businesses