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Health Care Reform and How it May Affect You; Is 13 Your Lucky Number?

On March 30, 2010 President Obama signed into law 13 new changes to the existing tax law.  The new health care reform law is full of new taxes and tax increases that will affect many individuals and businesses.  It also does include tax breaks that may help both individuals and businesses pay for health insurance.

• 10% excise tax on indoor tanning services for services provided after June 30, 2010.
   

• Tax credit to entice small firms to provide health insurance coverage will begin in 2010.  The new tax credit will provide employers with 10 or fewer workers and average annual wages of less than $25,000, a credit of up to 35% of their health premium costs each year through 2013.  The credit is phased out for firms larger than that and is completely eliminated if a company has more than 25 employees or average annual wages exceeding $50,000.
   

• Requirement that businesses must now include the value of the health care benefits they provide to each employee on W-2s, beginning with 2011 W-2s.  The amount reported is for informational purposes only and is not considered taxable income.
   

• Elimination of a deduction employers are currently taking for providing Medicare Part D prescription drug coverage to their retirees to the extent that the Federal government subsidizes the coverage.  This will not take effect until 2013.
   

• Double the penalty for nonqualified distributions from health savings accounts (HSAs), to 20%, beginning in 2011.
   

• Decreasing the amount that employees can contribute to health care flexible spending accounts (FSAs) to $2,500 a year.  This decrease on the maximum funding amount will not become effective until 2013.  This was previously left to the employer’s discretion, with many firms choosing a limit of $4,000 to $5,000.
   

• Starting in the year 2011, there will be a restriction for drawing funds from a flexible spending account (FSA), health reimbursement account (HRA) or health savings accounts (HAS) for the purchase of over-the-counter medications.
   

• Medicare surtax of .9% for all wages over $200,000 for single taxpayers and over $250,000 for married couples.  In addition, for the first time ever, a Medicare tax will apply to investment income of high income earners.  The 3.8% levy will be assessed when the lesser of (1) their unearned income or (2) the amount by which their adjusted gross income exceeds the $200,000 or $250,000 threshold amounts.
   

• Increase in the 7.5% floor on itemized deductions for medical expenses to 10%, beginning in 2013.Taxpayers age 65 and older are exempt from this increased threshold percentage through the year 2016.
   

• 40% excise tax, beginning in 2018, on high-cost health plans.  This excise tax will be assessed on the portion that exceeds $10,200 for individuals and $27,500 for families. 
   

• Tax on individuals that don’t obtain adequate health insurance coverage by the year 2014.  The tax is to be phased in over three years, starting at the greater of $95, or 1% of income, in 2014, and increasing to the greater of $695, or 2.5% of gross income, in 2016.
   

• Refundable tax credits for low-income individuals to assist them in obtaining adequate health insurance coverage.  This too will commence in 2014.  To meet eligibility requirements, the individual’s household income must be between 100% and 400% of the Federal poverty level, generally around $11,000 to $44,000 for single individuals and $22,000 to $88,000 for families.
   

• Nondeductible fee charged to businesses with 50 or more employees and they fail to offer adequate health insurance coverage.  The fee will be equal to $2,000 times the number of employees, with the first 30 employees being exempt from the calculation, or $60,000.

Call 732-359-0211 today to schedule an appointment to see how these new tax law changes may affect you!

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