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1 © 2013 AFFORDABLE CARE ACT: Tax Implications for Employers August 21, 2013 Juliana Reno firstname.lastname@example.org
2 © 2013 SMALL BUSINESS TAX CREDIT Effective Now
3 © 2013 SMALL BUSINESS TAX CREDIT Which employers qualify? All of the following must be true: Full-time equivalent employees (“FTEs”) ≤ 25 Average annual wages ≤ $50,000 Offer insured health coverage 2014 and later: must be exchange coverage Contribute ≥ 50% of the cost of employee-only coverage
4 © 2013 SMALL BUSINESS TAX CREDIT How to Calculate the Credit: Big Picture First calculate the maximum credit. Then reduce appropriately if FTEs > 10 or Average wages > $25,000.
5 © 2013 SMALL BUSINESS TAX CREDIT Maximum Credit: Amount of premiums paid by employer multiplied by Applicable Percentage 2013 tax-exempt employers—25% 2013 other employers—35% 2014+ tax-exempt employers—35% 2014+ other employers—50% There is a cap! In effect, the cap means that the employer cannot get a tax credit for buying coverage that is more expensive than the average in the state.
6 © 2013 SMALL BUSINESS TAX CREDIT Reductions If FTEs > 10, multiply the credit by: (FTEs-10)/15 If average wages > $25,000, multiply the credit by: (average wages-25,000)/25,000
7 © 2013 SMALL BUSINESS TAX CREDIT Miscellaneous Credit can only be claimed in 2 years Tax-exempt employers apply the credit against payroll tax liabilities Other employers must reduce the premium deduction by the amount of the credit Who is the employer? All entities within the controlled group count as a single employer. Who is an employee? Do not “count” self-employed, sole proprietors, 2% shareholders, 5% owners, and their family members
8 © 2013 RETIREE DRUG SUBSIDY Effective Now
9 © 2013 RETIREE DRUG SUBSIDY Applicable if employer offers a prescription drug plan to Medicare-eligible retirees The employer may deduct its costs The employer may be entitled to a subsidy Interplay of deduction and subsidy: Before 2013, employer could disregard the subsidy when calculating its deduction In 2013 and later, employer must reduce its deduction by the subsidy
10 © 2013 ADDITIONAL MEDICARE TAX Effective Now
11 © 2013 ADDITIONAL MEDICARE TAX Employer must withhold an additional 0.9% on wages over $200,000 Employer is not required to match this payment (this is different than “regular” Medicare taxes) What the employer must withhold is not exactly the same as what the employee will owe Employee who anticipates the need to pay the additional tax may request early/additional withholding
12 © 2013 FORM W-2 REPORTING Effective Now
13 © 2013 FORM W-2 Which employers are affected? Employers who issued 250 or more W-2s in the prior year What must be reported? Total cost of coverage (employer and employee premiums) for most employer-sponsored health plans, BUT NOT FOR ** stand-alone limited-scope dental or vision coverage ** coverage only for a specified disease or illness ** hospital indemnity or other fixed indemnity insurance ** coverage for long-term care ** accident- only coverage, disability coverage, or any combination of these ** coverage issued as a supplement to liability insurance ** liability insurance, including general liability insurance and automobile liability insurance ** workers’ compensation or similar insurance **
14 © 2013 FLEXIBLE SPENDING ACCOUNTS Effective Now
15 © 2013 FLEXIBLE SPENDING ACCOUNTS Employee contribution limit: $2,500 No longer permitted to reimburse OTC drugs unless An appropriate medical professional has issued a prescription; or The drug is insulin.
16 © 2013 PCORI FEES Effective Now
17 © 2013 PCORI FEES What are those? A way to fund the Patient-Centered Outcomes Research Institute (PCORI) PCORI better outcomes lower medical costs Scheduled to last 6 years Who is responsible for compliance? For fully-insured plans—insurance company For self-funded plans—employer
18 © 2013 PCORI FEES How to comply? Calculate the fee Applicable Dollar Amount: $1 for PYE between October 1, 2012, and September 30, 2013 multiplied by Average # of Covered Lives: different methods Complete IRS Form 720 Pay & Report Due by July 31 of the calendar year after the PYE First due date was July 31, 2013
19 © 2013 COVERAGE MANDATES Effective Now & Later
20 © 2013 COVERAGE MANDATES What are those? Examples include but are not limited to: No lifetime limits on essential health benefits No pre-existing condition exclusions If the plan covers children, must cover to age 26 No rescissions except in the case of fraud Cover preventive care at 100% Cover ER equally at in-network and non-network hospitals
21 © 2013 COVERAGE MANDATES Who is responsible for compliance? For fully-insured plans—insurance company For self-funded plans—employer What is the penalty for non-compliance? Excise Tax $100 per affected individual per day Not deductible Employer must self-report
22 © 2013 TRANSITIONAL REINSURANCE FEES First Reports November 15, 2014
23 © 2013 TRANSITIONAL REINSURANCE FEES What are those? A way to help insurance companies cover the claims of very sick people. Scheduled to last 3 years Who is responsible for compliance? For fully-insured plans—insurance company For self-funded plans—employer
24 © 2013 TRANSITIONAL REINSURANCE FEES How to comply? Report average # of covered lives to HHS by November 15, 2014 HHS to issue invoice within 30 days Applicable Dollar Amount: $63 for 2014 multiplied by Average # of Covered Lives Payment due within 30 days thereafter
25 © 2013 EMPLOYER MANDATE Delayed Until January 1, 2015
26 © 2013 EMPLOYER MANDATE (PAY OR PLAY) Premiums paid by an employer for an employer-sponsored plan Deductible as ordinary and necessary business expenses Not subject to payroll taxes (because not taxable income to the employee) Penalties under Code § 4980H Not deductible
27 © 2013 EXAMPLE Company has 100 FT employees Company offers coverage Employee-only coverage costs $6,000 Company pays 50%, or $3,000 Status Quo $210,000 premiums (70% uptake) Deductible Tax savings (35%) = $73,500 Net = $210,000 - $73,500 = $136,500 BOTTOM LINE W/O TAX IMPACT = $210,000 BOTTOM LINE W/TAX IMPACT = $136,500
28 © 2013 EXAMPLE Option #1: Continue Status Quo $150,000 premium (50% uptake) Deductible Tax savings (35%) = $52,5000 Net = $150,000 - $52,500 = $97,500 $60,000 penalty (20 employees) Not deductible BOTTOM LINE W/O TAX IMPACT = $210,000 ($150,000 + $60,000) BOTTOM LINE W/TAX IMPACT = $157,500 ($97,500 + $60,000)
29 © 2013 EXAMPLE Option #2: Stop Offering Coverage $0 premium $140,000 penalty ($2000 x (100-30)) Not deductible BOTTOM LINE W/O TAX IMPACT = $140,000 BOTTOM LINE W/TAX IMPACT = $140,000
30 © 2013 THE “CADILLAC” TAX Effective 2018
31 © 2013 CADILLAC TAX Employee will owe a 40% tax on the amount of the premium that is above the threshold Threshold (subject to indexing): $10,200/individual and $27,500/family Threshold is higher for high-risk professions
32 © 2013 NONDISCRIMINATION Effective Date TBA
33 © 2013 NONDISCRIMINATION Long-Standing Rule: Self-funded plans must not discriminate in favor of highly compensated individuals with respect to eligibility or benefits. Health Care Reform: “Similar rules” shall apply to fully-insured plans Grandfathered plans are exempt IRS has non-enforcement policy in place
34 © 2013 QUESTIONS ? ? ? ? ?
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