Tax Implications of Obamacare Presented by: Timothy A. George, CPA, MST, CCIFP 2 Players Club Drive, Suite 100, Charleston, West Virginia 25311 Office: (304) 343-4188 Fax: (304) 344-5035
20 Plus New Taxes or Tax Hikes The Act is expected to raise $800 billion in taxes/penalties over 10 years: 1. $318 billion - Medicare payroll tax increase, 2013. 2. $111 billion - tax on high-cost, or "Cadillac Plans, 2018. 3. $106 billion - penalty payments by employers, 2015. 4. $102 billion - fees on health insurance providers, 2014. 5. $45 billion - individual mandate tax penalties, 2014. 6. $34 billion - fees on manufacturers of branded d drugs, 2010. 7. $29 billion - tax on manufacturers of medical devises, 2013. 8. $24 billion - cap of flexible spending accounts, 2013. 9. $19 billion - raised floor on tax-deductible medical expenses, 2013. 2
Additional Medicare Tax for 2013 Increased Tax On Earned Income 0.9% Medicare tax increase on wages and self-employment earnings in excess of $250k MFJ or $200k for single filers. Employers withhold on wages over $200k. Taxes employee only Employers will be subject to penalty for failure to withhold Employee is ultimately responsible for the tax Married filers with combined wages over $250k are subject to the tax. Tax assessed on Form 1040. Income from partnerships and Form 1040 Schedule C filers are subject to this tax. 3
Additional Medicare Tax for 2013 Increased Tax On Net Investment Income (Surtax) 3.8% Medicare surtax on net investment income when modified adj. gross income exceeds $250k MFJ and $200k single. Imposed on interest, dividends, annuities, royalties, rents and capital gains, and the taxable portion of gain on sell of personal residence. Passive owners/investors in S-Corporations and partnerships are subject to this tax. Exemptions - tax exempt interest, distributions from qualified plans, IRA s and social security benefits IRA s and social security benefits 4
Additional Medicare Taxes for 2013 Some strategies for reducing the 3.8% surtax: Capital gains consider an installment sale and spread income over a number of years if the transaction puts you over the threshold limits. Consider like-kind exchanges to defer gains. Sell poor performing stocks to offset gains. Roth IRA conversions, charitable remainder and charitable lead trusts are some areas that may be used to reduce income subject to the surtax. If you are interested in more details, please let us know. 5
ACA Other Tax Hikes Itemized Deductions Threshold for Medical Expenses 7.5% threshold for deducting medical expenses increases to 10% for taxpayers under age 65 in 2013. In 2017, taxpayers age 65 and older will be subject to the new 10% threshold. Healthcare Flexible Spending Account (FSAs) A cap of $2,500 on contributions to a health care flexible spending arrangement, 2013. Previously there was no limit, use it or lose it basis $500 can now be rolled into next year Update plan documents 6
ACA Other Tax Hikes Additional Tax on Health Savings and Medical Savings Accounts Penalties for spending money on nonqualified expenses Health Savings Accounts (HSA) - 10 to 20% Archer Medical Savings Accounts (MSA) - 15 to 20% Fee on Health Insurance Providers (Reinsurance Fee) 2014-2016 Fee assessed on a per capita basis for both Fully insured (provider), and Self-funded members (employers) First payment due January 15, 2015. No exemptions based on size Approximately $5 per month per insured. 7
ACA Other Tax Hikes Patient-Centered Outcomes Research Trust Fund Fee (PCORI) Fee on insurers of specified health insurance policies and plan sponsors of self-insured health plans. Effective for first plan year end after Sept 30, 2012 and before October 1, 2019 Due dates: July 31, 2013 - plan year ends October 1, 2012 - January 31, 2013 July 31, 2014 - plan year ends February 1, 2013 - October 1, 2013 Fee $1 per individual for plan years ending between September 30, 2012 and September 30, 2013 $2 per individual for plan years ending between October 1, 2013 and September 30, 2014. Health Reimbursement Accounts May Be Subject To This! File Form 720 Federal Quarterly Excise Tax Return 8
Small Business Health Care Tax Credit Tax Credit for up to 50% of health insurance costs 35% Credit for tax years beginning g in 2010-2013 2014 and 2015, credit is 50% for small businesses who purchase coverage through a state-run insurance exchange Employers must : Pay at least 50% of the employee s health insurance costs Have fewer than 25 full-time equivalent employees (FTEs) Average annual wage must be less than $50k per FTE Phase out starts when FTEs exceed 10 and wages exceed $25k 9
Beginning 2015 Employer Mandate Employers with 50 or more FTEs must provide minimum health coverage for employees or may be subject to a monthly penalty beginning in 2015. An FTE is employed at least 30 hours per week or 130 hours per month. Part-time employees - work less than 30 hours and are included in determining FTE numbers. Part-time employees however, do not have to be covered. Seasonal workers are included in determining FTE calculation Seasonal workers working less than 120 days do not have to be covered. 10
Employers: Employer Mandate Will incur a penalty if the following two requirements are met: Workforce exceeds 50 FTEs, and One or more of its FTEs received premium credits or subsidies to purchase insurance on the exchange. Premium credits available when an employer does not offer affordable insurance or the insurance does not provide minimum value (60% of costs). Subsidy is available when household income is less than 400% of poverty level or when premiums exceed 9.5% of wages. 11
Penalty Amounts Employer Mandate No health insurance offered or does not meet essential coverage $2,000 ($166.67 per month) per FTE in excess of 30. Essential health insurance offered Lesser of: $2,000 per FTE in excess of 30, or $3,000 for every FTE receiving a subsidy or premium credit. Typically will not owe more than $2,000 per employee in excess of 30 employees. 12
W-2 Reporting Requirements For 2013 and beyond: Employers exceeding 250 W-2s must report total health insurance premiums paid. Employers under the 250 threshold are not required to report the health insurance premiums until further guidance is issued by the IRS. However, given the 2014 individual mandate, it would seem that all employers would be required to report health insurance costs incurred for 2014. 13
2015 Reporting Requirements Employers with over 50 FTEs will need to report: List of all insured, addresses and dates of coverage, and Certify that minimum essential coverage was offered to all eligible employees and dependents Relevant coverage dates Monthly premium of lowest cost option Employer s share of cost # of FTEs for each month Other info deemed necessary by IRS 14
In 2018 Cadillac Plans 40% excise tax imposed on benefit rich insurance plans that exceed annual amounts of: $10,200 (individuals) $27,500 (families) Annual amounts include medical, prescription drugs, fees, employee/employer contributions to FSAs, health reimbursement (HRA) or health savings accounts (HSA). Tax imposed on the excess of the value over the annual amounts. Self insured - paid by the employer/sponsor. Fully insured paid by the insurer 15
Beginning 2014 Individual Mandate All individuals must have insurance for themselves and Spouses Dependent children, claimed as a personal exemption Must be minimum essential coverage or face penalty. Certain exemptions apply 16
Individual Mandate Penalties The greater of: 2014 - $95/adult + $47.50/child, or 1% of household income 2015 - $325/adult + $162.50/child, or 2% of household income 2016 - $695/adult + $347.50/child, or 2.5% of household income 2017 - penalties will increase by cost of living adjustment 17
Individual Mandate Exceptions Religious groups Undocumented immigrant Incarcerated Member of native American tribe Did not have insurance for a period of less than 3 months Income below tax threshold, approximately: $10,000 individual $20,000 family Coverage is not affordable, more than 8% of income on employee self-only insurance after employer contributions or tax credits. 18
DISCLAIMER The information provided and discussed in this presentation may not apply to your specific situation. The tax laws listed in this presentation are subject to change. Please consult your tax advisor for your specific situation. 19