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In late March 2010, President Obama signed into law the new health care legislation. The legislation will affect virtually every individual in one way or another and will significantly impact the preparation of tax returns in the future. The provisions take effect over a period of years and are categorized by the year they become effective. Some of the provisions include additional taxes to offset the cost of the health care benefits included in the legislation for lower-income individuals.
- Student Loan Forgiveness for Health Professionals
- Previously, an individual’s gross income didn’t include cancellation of debt income that was attributable to the discharge of all or part of any student loan if the discharge was made under a provision of the loan - that all or part of the indebtedness would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers.
- Investment Credit for Therapeutic Discovery Projects
- In 2009 and 2010, for companies with 250 or fewer employees, a 50% nonrefundable investment tax credit is allowed for expenses paid or incurred for qualified investments in qualifying therapeutic discovery projects.
- Insurance for Uninsured Americans with Pre-existing Conditions
- Beginning July 1, 2010, a Pre-Existing Condition Insurance Plan will provide new coverage options to individuals who have been uninsured for at least six months because of a pre-existing condition.
- Expanding Coverage for Early Retirees
- Too often, Americans who retire without employer-sponsored insurance and before they are eligible for Medicare see their life savings disappear because of high rates in the individual market.
- Providing Free Preventive Care
- Effective for health plan years beginning on or after September 23, 2010, all new plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, co-pay or coinsurance....
- Pre-existing Condition Exclusions for Children Under Age 19
- Effective for health plan years beginning on or after September 23, 2010, for new plans and existing group plans, the new law includes rules to prevent insurance companies from denying coverage to children under the age of 19 due to a pre-existing condition....
- Elimination of Arbitrary Rescission of Coverage
- Effective for health plan years beginning on or after September 23, 2010, insurance companies may no longer retroactively cancel a policy because of sickness or an "unintentional" mistake on paperwork. The only exception is if the case involves fraud...
- Annual Dollar Limits
There is a phase out of annual dollar expenditure limits on health plans over the next three years until 2014 when the Affordable Care Act bans them for most plans.
- Tanning Services Excise Tax
- For indoor tanning services performed on or after July 1, 2010, a new 10% excise tax is imposed on the amount paid for any indoor tanning service, whether paid for by insurance or otherwise. The tax is imposed on tanning service recipients, although the service provider is liable for the collection and payment of the tax; thus, service providers are liable if they fail to collect the tax.
- Employer Tax-Free Medical Benefits Available to Children under Age 27
As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.
- Big Break for Self-Employed Health Insurance Deduction
- Background - A self-employed individual (or a partner or a more-than-2%-shareholder of an S corporation) can deduct as an above-the-line expense 100% of the amount paid during the tax year for medical insurance on behalf of himself, his spouse and his dependents subject to the following requirements. (Code Sec. 162(l)(1)(B))
- Tax Credits for Small Employers Offering Health Coverage
- The Patient Protection and Affordable Care Act provides a tax credit for an eligible small employer (ESE) for nonelective contributions to purchase health insurance for its employees. The term "nonelective contribution" means an employer contribution other than an employer contribution pursuant to a salary reduction arrangement.
- Employer W-2 Reporting Responsibilities
- Beginning in tax year 2012 (was originally scheduled to start for 2011 but has been delayed), employers will be required to disclose the aggregate cost of the benefit provided by them by the employer-sponsored health insurance coverage on the employee's annual Form W-2.
- Increased Tax on Nonqualifying HSA or Archer MSA Distributions
- The additional tax for HSA withdrawals for other than qualified medical expenses before age 65 are increased from 10% to 20%, and the additional tax for Archer MSA withdrawals for other than qualified medical expenses is increased from 15% to 20%. Distributions...
- Over-the-Counter Medication Restriction for Employer Plans
- Beginning in 2011, over-the-counter medications, except for doctor prescribed over-the-counter medication and insulin, will no longer qualify for reimbursement. This restriction applies to health reimbursement accounts (HRAs), health flexible spending...
- Small Employer Simple Cafeteria Plans
- For years beginning after Dec. 31, 2010, small employers (average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a "simple cafeteria plan."
- Additional Hospital Insurance Tax – High-Income Taxpayers
- The Hospital Insurance (HI) tax rate (currently at 1.45%) would be increased by 0.9 percentage points on individual taxpayer earnings (wage withholding and SE tax) in excess of compensation thresholds for the taxpayer’s filing status.
- Surtax on Unearned Income
- A new surtax called the Unearned Income Medicare Contribution Tax is imposed on individuals, estates, and trusts.
- Employer Health Flex-Spending Plan Contributions Limited
- In order for a health FSA to be a qualified benefit under a cafeteria plan, the maximum amount available for reimbursement of incurred medical expenses of an employee, the employee's dependents, and any other eligible beneficiaries with respect to the...
- Medical Itemized Deductions Limited
- The itemized deduction for medical expenses will be limited in the following manner.
- $500,000 Compensation Deduction Limit for Health Insurance Issuers
- For services performed during that year, a covered health insurance provider isn't allowed a compensation deduction for an “applicable individual” (officers, employees, directors, and other workers or service providers such as consultants) in excess of...
- Mandatory Health Insurance Overview
Many of the provisions of the Health Care Legislation are linked to the mandate that everyone becomes insured.
- American Health Benefit Exchanges
By 2014, each state must establish an exchange to help individuals and small employers obtain coverage. Benefit options will be in a standard format and a single enrollment form used for all policies.
- Penalty for Not Being Insured
- Non-exempt U.S. citizens and legal resident taxpayers will be penalized for failing to maintain at the least the minimum essential health coverage.
- Premium Assistance Credit
- Tax credits will be available for low-income individuals who obtain health insurance coverage with a qualified health plan (QHP) through an “Exchange”.
- Large Employer Health Coverage Excise Tax
Large employers, generally those with 50 full-time employees in the prior calendar year, that:
o Do not offer coverage for all its full-time employees,
o Offer minimum essential coverage that is unaffordable (employee contribution is more than 9.5% of the employee's household income), or
o Offer minimum essential coverage where the plan's share of the total allowed cost of benefits is less than 60%,
Would be required to pay a penalty if any of its full-time employees were certified to the employer as having purchased health insurance through a state exchange and qualified for either tax credits or a cost-sharing subsidy discussed previously. (Code Sec. 4980H(a))
- Excise Tax on High-Cost Employer-Sponsored Health Coverage
- Beginning in tax year 2018, there will be a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan where the premiums exceed the following amounts.
- Fee on self-insured health plans -Patient-centered Outcomes Research Fee
- Section 4376 imposes a fee equal to $2 ($1 for plan years ending during physical year 2013) multiplied by the average number of lives covered under the plan. The plan sponsor is liable for the fee. The fees qre required to be reported annually on the 2nd quarter. Use Form 720 (IRS #133) and pay by its due date, July 31st. Fees are based on the average number of lives covered under the policy or plan.
- Employee Notices
- Beginning January 1, 2014 (October 1, 2013 for existing employees), certain employers must provide written notice to employees about health insurance coverage options available through the Marketplace (insurance exchanges).