1. The Patient Protection and Affordable Care Act – What it Means to Businesses and Individuals
Linda Ialacci, CPA
Horvath & Giacin, P.C.
July 18, 2012

2. Overview Tax provisions already in place
Small business health care tax credit
Insurance for adult children
Tax provisions set to take place in coming years
W-2 reporting requirements for health insurance premiums
Medicare tax increase
Individual insurance coverage mandate
Employer insurance coverage mandate

3. Small Business Health Care Tax Credit
The employer must:
Employ fewer than 25 Full-Time Equivalent (FTE) Employees
Have average annual wages less than $50,000
Pay at least 50% of the health insurance premium on behalf of employees
The credit is limited if average annual wages are above $25,000
Credit is fully phased out if average annual wages exceed $50,000
Owners not included in calculation

4. Illustration – Company A
5 employees who worked a total of 9,200 hours during the year
FTE = 9200 hours / 2080 = 4.42 which is rounded down to 4
Total wages $100,000
Average wages = $100,000 / 4 FTE = $25,000
Premiums paid $30,000 (3 individual, 2 family)
Multiply premiums paid by 35% - $10,500
Taxpayer gets CREDIT of $10,500 on tax return

5. Illustration – Company B
49 employees worked a total of 56,000 hours
56,000 / 2,080 = rounded down to 26
Total wages $1,200,000
$1,200,000 / 26 = $46,154 rounded down to $46,000
Premiums paid $20,000 (12 individuals)
Does not qualify because total FTE employees of 26 is greater than 25
Not eligible for credit

6. Small Business Tax Credit as Percentage of Employer-Paid Premiums

7. Insurance for Adult Children
Continue up to age 26
Need not be dependents
Not included in income
Applies to married as well as unmarried kids
Spouse and children of children not included
Covers one of the largest segments of uninsured Americans

8. W-2 Reporting Cost of Health Care Coverage
Started in 2011, but delayed until 2012 for large employers (>250 employees)
Box 12, code DD
Not included in income
Informational purposes only
Aggregate cost of all health insurance coverage
Not to include FSA, HSA, MSA

9. Sample W-2

10. Additional Medicare Tax on Unearned Income
Assessed on smaller of:
Unearned income, OR
Amount exceeding threshold
No employer match
Thresholds:
$200K for individuals
$250K for married filing jointly
$125K for married filing separately
Does NOT apply to distributions from active participation in S Corporation

11. Additional Medicare Tax Calculation

12. Additional Medicare Tax on Earned Income
Assessed on earned income
Employed individuals - Employer must withhold
Self-employed individuals
Same thresholds:
$200K for individuals
$250K for married filing jointly
$125K for married filing separately
Both Medicare taxes begin in 2013

13. Itemized Deduction Floor – Medical Expenses
Currently, medical expenses exceeding 7.5% of AGI are deductible
Will increase to 10% of AGI
Starts in 2013
For age 65+, will stay the same until 2017

14. Individual Coverage Mandate
Generally, everyone must be able to prove they have “minimum essential coverage”
Penalty assessed for noncompliance
Affordability exemptions and potential financial assistance
Requires another tax return!

15. Minimum Essential Coverage
Coverage under a government-sponsored plan
Medicare Part A
Medicaid
Children’s Health Insurance Program (CHIP)
TRICARE
Veterans health care programs
Peace Corps program
Employer-sponsored plans
Plans in the individual market
Grandfathered plans
State health benefits risk pool, as recognized by HHS

16. Penalty for Noncompliance
Greater of a flat amount per person or a percentage of income
Increases from 2014 to 2016
Penalty is per person, with family ceilings
Included in the tax return
IRS cannot levy to collect penalty, but can reduce income tax refunds
Based on “applicable income”

17. “Applicable Income”
Defined as the amount by which an individual’s household income exceeds the total of:
Personal exemption amount ($3,700 for 2011), AND
Standard deduction amount ($5,800 for 2011, if single)
For 2011, applicable income would be:
Total household income, less $9,500

18. Penalty Amounts For 2014, the greater of: For 2015, the greater of:
Flat dollar amount of $95 per person, OR
1% of “applicable income”
For 2015, the greater of:
Flat dollar amount of $325 per person, OR
2% of “applicable income”
For 2016, the greater of:
Flat dollar amount of $695 per person, OR
2.5% of “applicable income”

19. Penalty Limits For dependents, per-person dollar amount is halved
Total family penalty is capped at 300% of annual flat dollar amount:
For 2014, $285
For 2015, $975
For 2016, $2,085
Cannot exceed national average premium for bronze-level-qualified health plans offered through exchanges

21. Employer Mandate Applies to “large employers” – 50 FTE
Not offering health insurance, OR
Offering insufficient/unaffordable coverage
At least one employee requests tax credit under exchange
Must provide proof of coverage to employees
Effective March 1, 2013
Another tax return!

22. Employer Penalties – Not Offering Coverage
Subject to penalty if ANY employee received premium credit under an exchange plan
$2,000 x (Full-time employees – 30) per year
50 employees = (50-30) x $2,000 = 20 x $2,000 = $40,000 per year, or $3,333 per month.
Begins in 2014
After 2014, will be indexed by the national average growth rate for the calendar year.
Penalty is the same whether one or all employees received credit

23. Employer Penalties – Offering Coverage
Subject to penalty if ANY employee received premium credit under an exchange plan
Employee’s contribution > 9.5% of household income, OR
Plan offered by employer pays for less than 60% of covered expenses
Limited to lesser of:
$3,000 per year for each employee who receives a credit, OR
Total number of full time employees minus 30, x $2,000.
All penalties are calculated per year, but are based on months; full year penalties assume that the number of affected employees is the same throughout the year

24. FT Employees in an Exchange Plan and receiving a Premium Credit? NO
Large Employer? NO
Yes
No Penalty
FT Employees in an Exchange Plan and receiving a Premium Credit? NO
Yes NO
More than 30 FT Employees?
Yes
Provide Health Insurance?
Penalty
1/12 * 2000 *
(FT Employees - 30) NO
Yes
Penalty
1/12 * 3000 * # of employees who receive credits for exchange coverage
Pay Monthly Penalty
Lesser of Penalty equations

25. Linda Ialacci, CPA Horvath & Giacin, P.C. 130 Route 31 North
Pennington, NJ 08534
(609)
Circular 230 Disclaimer:  To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter (s) addressed herein.