Tax aspects of health care law
The new health care law includes sweeping changes for both employers and individuals. Following is a brief summary of several key tax-related provisions.
Coverage for individuals: After 2013, any individual not eligible for Medicare or Medicaid must obtain minimum essential coverage or pay a nondeductible penalty based on a flat dollar amount or a percentage of household income. The new law also provides coverage subsidies to qualified lower-income individuals through premium assistance tax credits and reduced cost-sharing.
Employer requirements: Beginning in 2014, an employer failing to offer minimum essential coverage in any month for an eligible full-time employee will be liable for an additional tax. The tax equals 1/12th of $2,000 times the number of all full-time employees. This penalty applies to employers with 50 or more workers, but the first 30 workers are subtracted from the calculation.
Small businesses: Beginning in 2010, a qualified small business may use a special tax credit to offset employer-provided coverage. A “small business” is generally one with no more than 25 employees and average annual wages of less than $50,000 per employee. A bigger credit is available to employers with no more than 10 employees and average annual wages of less than $25,000.
Medicare taxes: Beginning in 2013, an additional 0.9% Medicare tax is imposed on wages of unmarried individuals with earned income above $200,000 and $250,000 for married joint filers; and an additional 3.8% Medicare tax applies to “net investment income” received by unmarried individuals with a modified adjusted gross income (MAGI) above $200,000 and $250,000 for joint filers.
Tax on health insurance plans: Beginning in 2118, insurers will have to pay a 40% excise tax if the annual premiums for a health insurance plan exceed $10,200 for individual coverage and $27,500 for family coverage.
Medical deductions: Under current law, an individual may deduct only qualified medical expenses in excess of 7.5% of adjusted gross income (AGI). Beginning in 2013, the new law generally raises this “floor” to 10% of your AGI.
However, an individual (and spouse) who is age 65 or older is temporarily exempt from this increase for tax years beginning after 2012 and before 2017.
Flexible spending accounts: The new law caps the annual amount of health care FSA contributions at $2,500, beginning in 2013 (indexed for inflation after 2013).
Adoption credit: The new law makes the adoption credit refundable, retroactively raises the dollar limit on the credit for 2010 from $12,170 to $13,170 and enhances the credit for adopting special needs children.
Information reporting: Beginning in 2012, a business must file information returns for annual payments of $600 or more to any corporate or noncorporate recipient (other than tax-exempt entities).
Of course, this is only a general overview of several important tax provisions in the massive health care legislation. The new health care law will have far-reaching effects for individuals and business owners. To find out exactly how the new law affects you, your family and your business, call us and we will be glad to provide you with an analysis of your situation.
Small Business Health Care Tax Credit
Millions of small businesses will receive postcards from the IRS beginning the week of April 19 that alert them to the new Small Business Health Care Tax Credit and encourage them to check their eligibility. Even if you don’t receive a postcard, your business still may be eligible.
Included in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the credit is one of the first health care reform provisions to go into effect. The credit, which takes effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
“We want to make sure small employers across the nation realize that — effective this tax year — they may be eligible for a valuable new tax credit. 
Our postcard mailing — which is targeted at small employers — is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”
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 low- and moderate-income workers.
Eligibility Rules
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Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
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Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
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Average annual wage. A qualifying employer must pay average annual wages below $50,000.
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Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
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Maximum Amount. The credit is worth up to 35 percent of a small business’ premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
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Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Three Simple Steps for Employers to Qualify
To determine if your small business or tax exempt organization qualifies for the Small Business Health Care Tax Credit, follow the three simple steps on our fact sheet.
Hiring Incentives to Restore Employment Act (HIRE)
President Obama signed into law the Hiring Incentives to Restore Employment Act (HIRE), an economic stimulus plan that contains $15 billion dollars in new incentives for businesses, which hire unemployed workers in 2010.
Two key provisions that may affect you:
- Eliminating the current 6.2 percent employer Social Security tax for eligible new hires
- A $1,000 business tax credit for keeping eligible employees for at least 52 consecutive weeks
This legislation 
makes significant changes that go beyond payroll processing – your business may be affected in numerous ways. To help determine the impact of this new legislation, call our office to receive a free consultation.
In addition, The HIRE Act is another reminder why so many clients prefer to have their CPA’s or accountants prepare their payroll. With over 25 years of experience in helping small business such as yours, we provide solutions that go beyond payroll processing. Emil Estafanous, CPA has processes in place to monitor and react to the changing legislative landscape and support the ongoing needs of your business.
It would be to your advantage to contact me and schedule an appointment so we can review how you can benefit from this new law.
