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WASHINGTON — The Internal Revenue Service today issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care tax credit under the Affordable Care Act and how large a credit they will receive. The guidance makes clear that small businesses receiving state health care tax credits may still qualify for the full federal tax credit. Additionally, the guidance allows small businesses to receive the credit not only for regular health insurance but also for add-on dental and vision coverage.
Notice 2010-44 provides detailed guidelines, illustrated by more than a dozen examples, to help small employers determine whether they qualify for the credit and estimate the amount of the credit. The notice also requests public comment on issues that should be addressed in future guidance.
Included in the Affordable Care Act approved by Congress in March and signed into law by the President, the small business health care tax credit, which is in effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.
Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.
By Stacie Clifford Kitts, CPA
So, its tax time and I’m sorta busy. That’s why its taken me a couple of days to get around to listing out the tax provisions associated with the passing of HR 3590 aka the Patient Protection and Affordable Care Act. This act passed on Sunday and is headed for presidential approval if you haven’t been paying attention.
But no fear, the Journal of Accountancy is on top of it. You can read the details of the provision listed out by the J of A here.
Because I am a visual learner, I like to use outlines to summarize stuff I want to remember. So here goes a quick outline of the tax provisions of the Act. This information is highlighted and does not include all the specific details of each provision.
Premium Assistance Credit – For years beginning on 1/1/14 a tax credit related to health care premiums purchased through a state health benefit exchange is available. See J of A article for details.
Small Business Tax Credit – For tax Years Beginning on or after 1/1/10, businesses with less than 26 employees and wages under $40,000 are eligible for a credit up to 50% of non-elective insurance premium contributions the business makes on behalf of employees. A 100% of the credit is available for employers with fewer than 11 employees with wages of less than $20,000 with a phase out up to the 25-employee limit
Excise tax on Uninsured Individuals – Tax years beginning on or after 1/1/14, individuals must maintain minimum amounts of coverage or be subject to $750 penalty if over age 18, $325 for under age 18. Total household penalty max out is 300% of $750 so $2250. FYI as the J of A notes – the reconciliation bill HR 4872 if enacted will change the amount of the penalty
Tax Exempt Health Insurers – This program will help to create qualified nonprofit health insurance issuers
Reporting Requirements – Beginning on 1/1/14, employers, you are going to report covered individuals to the IRS.
Medical Care Itemized Deductions Threshold -Beginning on 1/1/13 to take an itemized deduction for you medical expenses, the total amount of your medical expense eligible for deduction must be greater than 10% of your adjusted gross income. This is an increase over the previous amount, which was 7.5% of your AGI. There is an exception if you are 65 years or older.
Cafeteria Plans – Starting 1/1/14 if you make premiums through an exchange they will be considered a qualified benefit under a cafeteria plan.
Additional Hospital Insurance Tax on High Income Taxpayers – For tax years beginning on or after 1/1/13, there is a FICA increase of .9% on wages of $200,000 for an individual or $250,000 for a joint tax return.
***Talk about marriage penalty – if you are married and a joint earner your FICA goes up after $250,000 of joint income but if you are only living together there is no increase until each earner makes over $200,000. What do our lawmakers have against married people anyway?
Employer Responsibility – Beginning on 1/1/14, employers with at least 50 full time employees during the preceding calendar year are subject to a penalty if the employer fails to offer full time employees and dependents the opportunity to enroll in minimum essential coverage under an employer sponsored plan.
Fees on Health Plans – Beginning for plan years on or after 10/1/12, Health insurers are subject to fee’s on health plans. The fee is equal to two dollars multiplied by the average number of individuals covered under the plan.
Excise Tax on High-Cost Employer Plans – For tax years beginning on or after 1/1/18, a tax of 40% of amounts greater than $10,200 for individual coverage or $27,500 for family coverage multiplied by the health cost adjustment percentage (as defined in the act) and increased by the age and gender adjusted excess premium amount as defined in the act.
Tax on HSA Distributions – For tax years beginning on or after 1/1/2011, tax on distributions from a HSA that are not used for medical expenses is increased to 20% of the disbursed amount.
Tax on Indoor Tanning Services – For services on or after 7/1/2010 there is a 10% tax on amounts paid for indoor tanning services.
Flexible Spending Account – Tax years beginning on or after 1/1/13, the maximum amount reimbursable for medical expenses cannot exceed $2500
SIMPLE Cafeteria Plans for Business – For tax years beginning on or after 1/1/11, eligible small business is provided a safe harbor from the non-discrimination requirements for cafeteria plans
Okay I need to get back to those tax return that are due soon, so the rest of this is quoted directly from the J of A:
Expansion of Adoption Credit Adoption Assistance Programs – ” For 2010, the maximum adoption credit is increased to $13,170 per eligible child (a $1,000 increase). This increase applies to both non-special needs adoptions and special needs adoptions. Also, the adoption credit is made refundable. The new dollar limit and phase-out of the adoption credit are adjusted for inflation in tax years beginning after Dec. 31, 2010. Also, the scheduled sunset of EGTRRA provisions relating to the adoption credit is delayed for one year (i.e., the sunset becomes effective for tax years beginning after Dec. 31, 2011).
For adoption assistance programs, the maximum exclusion is increased to $13,170 per eligible child (a $1,000 increase). The new dollar limit and income limitations of the employer-provided adoption assistance exclusion are adjusted for inflation in tax years beginning after Dec. 31, 2010. The EGTRRA sunset of provisions relating to adoption assistance programs is also delayed for one year (i.e., the sunset becomes effective for tax years beginning after Dec. 31, 2011).”
Charitable Hospitals – “The act establishes new requirements applicable to section 501(c)(3) hospitals, regarding conducting a community health needs assessment, adopting a written financial assistance policy, limitations on charges, and collection activities.”
Information Reporting – “The act requires employers to disclose on each employee’s annual Form W-2 the value of the employee’s health insurance coverage sponsored by the employer, effective for tax years beginning after Dec. 31, 2010.
The act requires businesses to file an information return (e.g., a Form 1099) for all payments aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation). The provision is effective for payments made after Dec. 31, 2011.”
Return Information Disclosure – “The act allows the IRS, upon written request of the Secretary of Health and Human Services, to disclose certain taxpayer return information if the taxpayer’s income is relevant in determining the amount of the tax credit or cost-sharing reduction, or eligibility for participation in the specified state health subsidy programs.
Upon written request from the Commissioner of Social Security, the IRS may disclose the certain limited return information of a taxpayer whose Medicare Part D premium subsidy, according to the records of the Secretary, may be subject to adjustment.”