2. Understanding the Key Tax Implications of the New Health Care Laws
Presented by:
Robert J. Grossman, cpa/abv, asa, cva, cba
Partner, GYF Tax & Business Valuation Services
Grossman Yanak & Ford LLP
Three Gateway Center, Suite • Pittsburgh, PA
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3. Introduction

4. The new laws are encompassed in two separate pieces of legislation:
Patient Protection and Affordable Care Act (referenced as PPACA)
Health Care and Education Reconciliation Act (referenced as HCERA)

5. The provisions addressed herein will not be segregated by their specific legislation The two laws will simply be referred to together in today’s presentation as the “Health Care Act” or “HCA”

6. Constitutional challenge turned back on June 28, 2012, in a 5-4 Supreme Court Case
National Federation of Independent Business et al. vs. Sebelius, SC8.,
Thus, the law was upheld

7. PPACA signed into law by President Obama in March 2010
Numerous federal government agencies, including the Internal Revenue Service, Department of Labor, and the Department of Health and Human Services, have issued guidance and regulations since the bill was signed into law

8. What should business owners do in response to the law and the Supreme Court decision?
No choice… but to comply

9. Focus in this program is on the tax provisions related to the health care laws only
Compliance with the many non-tax provisions of the law are beyond the scope of this presentation

10. Commentators in the tax community have noted that the tax provisions added or amended by the HCA make this legislation the most expansive revision of tax laws in more than two decades!

11. A descriptive adjective for the tax provisions of the HCA would not include the word, simple

12. The key provisions of the legislation can be broken down into two broad categories
Business Provisions
Individual Provisions

13. Business Provisions

14. Employer Shared Responsibility Provision
The “Employer Mandate”
“Applicable large employer” may be subject to a shared responsibility payment

15. Employer Shared Responsibility Provision
May apply if:
Any full-time employee is certified to receive an applicable premium tax credit or a cost-sharing reduction payment

16. Employer Shared Responsibility Provision
Only occurs when:
Employer does not offer full-time employees (and dependents) the opportunity to enroll in minimum essential coverage; or
Minimum essential coverage is unaffordable (based on income) or does not provide minimum value

17. Employer Shared Responsibility Provision
What is minimum value?
Employer plan does not pay at least sixty percent (60%) of the total allowed costs

18. Employer Shared Responsibility Provision
Applicable Date
For all months beginning after December 31, 2013

19. Employer Shared Responsibility Provision
Definition of “applicable large employer”
Employs fifty (50) or more full-time employees (on average) on business days during the preceding calendar year

20. Employer Shared Responsibility Provision
Definition of “full-time employee”
One who works, on average, at least thirty (30) hours per week

21. Employer Shared Responsibility Provision
Many interpretive details remain open and continue to be addressed by IRS Notices and interpretive guidance

22. Small Employer Health Insurance Credit
A credit up to thirty-five percent (35%) of health in- surance premiums paid by small business employers

23. Small Employer Health Insurance Credit
Credit is already in place and is applicable to years at current maximum credit rate (35%)

24. Small Employer Health Insurance Credit
Credits versus deductions
A credit represents a dollar-for-dollar reduction against tax, while a deduction reduces taxpayer’s or employer’s taxable income, on which the tax is calculated

25. Small Employer Health Insurance Credit
Qualified employer
Fewer than twenty-five (25) full-time equivalent employees for the year;
Average annual wages must be less than $50, per employee;
A qualifying arrangement must be maintained

26. Small Employer Health Insurance Credit
Only a very small percentage of the eligible companies claimed the credit in 2010

27. Small Employer Health Insurance Credit
Employees, for these purposes, do not include:
Sole proprietors
Partners
Greater-than-2% shareholders in an S Corp.
Owners of more than 5% of other business entities
Spouses and family members

28. Small Employer Health Insurance Credit
IRS Notice provides information on calculating the credit
Information and the credit calculation provided to the IRS on Form 8941, “Credit for Small Employer Health Insurance Premiums”

29. Small Employer Health Insurance Credit
To obtain maximum credit:
Company/employer cannot exceed the equivalent of 10 (ten) full-time employees (25 FTEs maxi- mum to qualify)
Maximum salary cannot exceed $25, ($50,000 maximum salary to qualify)

30. Small Employer Health Insurance Credit
Qualifying arrangement
Any scenario in which the employer pays a uniform percentage (not less than 50%) of the premium cost of health insurance coverage

31. Small Employer Health Insurance Credit
IRS set a cap, by state, on employee and family insurance premiums eligible for the credit
Pennsylvania: Employee Family $5,039 $12,471

32. Small Employer Health Insurance Credit
Exceeding the caps will serve to reduce the maximum credit allowed under the provision

33. Small Employer Health Insurance Credit
Credit calculation
If fewer than ten (10) full-time equivalent employees, average salaries of $25,000 or less, and a qualified arrangement is in place, then
the credit is thirty-five percent (35%) of total eligible insurance premiums paid

34. Small Employer Health Insurance Credit
Unused credits can generally be
Carried back one (1) year, and
Carried forward twenty (20) years

35. Small Employer Health Insurance Credit
This credit increases to fifty percent (50%) for years beginning after December 31, 2013

36. Cafeteria Plan Offering Qualified Health Plans in an Exchange
For 2014 and forward, a cafeteria plan will not be permitted to offer a qualified health plan offered through an American Health Benefit Exchange

37. Flexible Spending Arrangements
For 2013 and forward, the HCA limits contributions to $2,500, down from an overall $5,000 limitation
The amount of the limitation will be adjusted annually for inflation

38. Medical Expense Definitions
HCA changes the definition of medical expenses for:
Health Flexible Spending Arrangements
Health Reimbursement Arrangements
Health Savings Accounts
Archer Medical Savings Accounts

39. Medical Expense Definitions
Generally, changes are effective for 2011 and beyond
Example:
Amounts spent for medicine or drugs are reimbursable as medical expenses only if spent on a “prescribed drug” or insulin

40. Simple Cafeteria Plans
For 2011 and forward, HCA provides a simple cafeteria plan for small businesses
Inclusive of non-discrimination safe harbor requirement

41. Simple Cafeteria Plans
To qualify, the employer must:
Have an average of one hundred (100) or fewer employees on business days in either of the preceding two (2) years

42. Other Business Provisions
Reporting
Form W-2 disclosure
Exception for employers with fewer than 250 Forms W-2

43. Other Business Provisions
Must file annual information returns:
Health insurance carriers
Sponsors of self-insured plans
Government agencies administering plans
Other entities providing minimum essential coverage

44. Prescription Drug Subsidy for Retirees
A subsidy of twenty-eight percent (28%) of covered prescription drug costs is available to employers sponsoring group health plans with drug benefits for retirees
Medicare Prescription Drug, Improvement and Modernization Act of 2003

45. Prescription Drug Subsidy for Retirees
HCA requires the business deduction for retiree prescription drug costs to be reduced by the amounts of subsidy payments received under the 2003 Act
Effective for 2013 and forward

46. High-Cost Coverage Excise Tax
Effective in 2018 and beyond, an excise tax of forty percent (40%) will be applied to employer-sponsored health insurance coverage where annual premiums exceed a threshold amount

47. High-Cost Coverage Excise Tax
Threshold dollar limits (2018):
Employee only: $10,200 multiplied by the “health cost adjustment percentage”
Family: $27,500

48. Individual Provisions

49. Minimum Essential Health Coverage
Individual mandate
Applicable individuals must obtain “minimum essential health coverage” or be subject to a shared responsibility penalty for each month of non-coverage

50. Minimum Essential Health Coverage
Individual mandate
Effective for 2014 and forward

51. Minimum Essential Health Coverage
Generally includes:
Coverage under an eligible employer- sponsored plan, an individual market plan, a grandfathered plan, Medicaid and Medicare, among others

52. Minimum Essential Health Coverage
Penalty calculation
The greater of a flat dollar amount or a calculation based on a percentage of the taxpayer’s household income
Assessed/imposed monthly

53. Premium Assistance Tax Credit
Eligible low-income individuals who obtain health coverage under a qualified health plan through an insurance exchange may qualify for this credit

54. Premium Assistance Tax Credit
Limitation
Credit is not available if the individual is eligible for other essential minimum coverage, including employer-sponsored coverage that is affordable and provides minimum value

55. Premium Assistance Tax Credit
Minimum value
A plan fails to provide minimum value if it provides less than sixty percent (60%) coverage of the total allowed costs

56. Premium Assistance Tax Credit
Eligibility for credit
Determined by the relationship of the taxpayer’s household income to the federal poverty level (FPL)
Income must be at least 100%, but less than 400% of FPL

57. Medical Deduction Threshold
The itemized deduction threshold of 7.5 percent of adjusted gross income is increased to 10 percent for and beyond
If a taxpayer turns 65 before January 1, 2013, the old threshold (7.5 percent) will be in place until 2016

58. Additional Medicare Tax
For tax years beginning in 2013, an additional .9 percent Medicare tax is imposed on wages and self- employment income of higher-income taxpayers
Applies to individuals with salary, wages, etc. in excess of $200,000; married couples, $250,000

59. Investment Income Taxation Increase
HCA adds an additional Medicare tax of 3.8 percent on “unearned income” effective for 2013 and beyond

60. Investment Income Taxation Increase
The tax is imposed on the lesser of:
An individual’s net investment income for the tax year, or
Modified adjusted gross income in excess of $200,000; $250,000 for married couples

61. Investment Income Taxation Increase
Net investment income is gross income from:
Interest, dividends, annuities, royalties and rents,
Gross income from any passive trade or business, and
Net capital gains

62. Dependent Coverage Until Age 26
HCA requires extended coverage until a dependent reaches age 26

63. Dependent Coverage Until Age 26
Grandfathered group plans are not required to offer dependent coverage if a young adult is eligible for group coverage outside his/her parent’s plan
Effective for plan years beginning before January 1,

64. Summary

65. The reach and breadth of the HCA provisions is very broad and, without question, will require most affected companies to seek outside assistance to ensure compliance

66. Thank You!
Robert J. Grossman