The new health care reform laws have differing impacts and timelines for employers depending upon the size of the business and the types of benefit plans they have put into place to provide health related insurances. Since there is interaction between the HIRE Act and health care reform that presents both opportunities and pitfalls, we highly recommend that businesses consult with their CPA, insurance broker and other trusted advisers to determine the proper course of action specific to their business.
SHORT TERM OVERVIEW OF THE IMPACT ON BUSINESSES
- 2010-2013: Small businesses (fewer than ) providing health care coverage for employees may be eligible to claim a credit equal to 35% of the contributions they make on behalf of their employees for insurance premiums. There are rules and limitations which are outlined in the recap of IRS Notice 2010-44 below.
- 2011: Employers must report the value of health insurance plans on W-2 forms and all employer-sponsored plans will be required to have the following amendments: (1) Eliminate lifetime and annual limits on benefits, (2) Provide first-dollar coverage for preventative care, (3) Extend eligibility for dependent coverage to employees’ unmarried children through age 26.
- 2013: A $2,500 limitation on contributions to health FSAs and FSAs, HSAs or MSAs can no longer be used for over the counter drugs. Penalties for using these accounts for disallowed purchases will increase from 10 to 20% on HSAs and from 15 to 20% for MSAs.
There are many other phase-in reforms that occur in the following years. Due to the volatility of this reform, we recommend that you follow the progress at the IRS website and seek counsel from your trusted advisers in order to plan effectively.
IRS OFFERS DETAILS ON HEALTH CARE TAX CREDIT
On May 17th, 2010 the IRS issued new guidance to make it easier for small businesses to determine whether they are eligible for the new health care credit. Notice 2010-44 provides the following information:
- Purpose and Background: Brief overview of the reasons for the credit.
- Employers Eligible for the Credit: Overview of the requirements and details on the five steps employers must take to determine eligibility.
- Calculating the Credit: Details on the three steps that determine the credit amount.
- Claiming the Credit and Effect on Estimated Tax, AMT and Deductions
- Transition Relief for Taxable Years Beginning in 2010
- Effective Date
The notice is twenty pages long and offers quite a few examples to assist the employer with making the proper determinations. Again, we recommend that business owners consult with their CPA and other trusted advisers to ensure they are taking full advantage of the general business credit being offered.
NON PROFIT EMPLOYERS
Organizations described in section 501c that are exempt from tax under section 501a may be eligible for the credit. Since these employers are exempt from paying corporate / business tax, there is some confusion as to how they will be able to claim and receive the credit. In Notice 2010-44 section 45R states that, “For a tax-exempt eligible small employer, the IRS will provide further information on how to claim the credit.” General consensus among the many advisers PCS has polled is that the credit will either be taken on the 941 payroll tax filing or may be issued in the form of a grant. At this time, all thoughts are pure conjecture and we are awaiting final direction from the IRS.
Since eligible small employers that are not tax-exempt will be taking the credit on the business tax returns, there are not any ramifications on payroll tax reporting at this time. However, it’s important to note the need for reporting the value of the employees health insurance on the W-2’s beginning in tax year 2011.
Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.