Posts Tagged ‘Small Business Tax Credit’

Health Care Reform Overview

Thursday, August 2nd, 2012

Health Care ReformHealth care reform legislation has added a number of new taxes and made various other changes which will help finance the reform. The legislation also made several health care related changes which benefit certain taxpayers:

  • A credit to offset part of the costs of health insurance for low to middle income individuals and families.
  • A credit to offset the costs to small businesses which provide health insurance for their employees.

Here is a list of some of the tax related items from the health care reform legislation that were upheld as a result of the Court’s decision:

Provisions Already in Effect

  • Small Business Tax Credit: Small businesses, defined as businesses with 25 or fewer employees and average annual wages of $50,000 or less, are eligible for a credit of up to 50% of nonelective contributions the business makes on behalf of their employees for insurance premiums.
  • Tax on Health Savings Account (HSA) Distributions: Additional tax on distributions from an HSA or an Archer Medical Savings Account (MSA) that are not used for qualified medical expenses is increased to 20% of the disbursed amount.
  • SIMPLE Cafeteria Plans for Small Business: An eligible small employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for specified qualified benefits offered under a cafeteria plan.
  • Adult Dependent Insurance Coverage: If dependent coverage is provided, plans must allow coverage for children up to age 26 regardless of student or marital status.  Employers may exclude the cost of dependent coverage for children under age 27 from an employee’s taxable income.
  • Restrictions on Use of HSA and FSA Funds: Over the counter medications are no longer 213D qualified medical expenses.  This change makes these medications ineligible for FSA, HRA and H.S.A. reimbursement.  Prescribed drugs and insulin are still considered to be 213D qualified eligible expenses.
  • Information Reporting: If your company filed 250 or more W-2s in 2011, then you must report the health insurance premium for each participating employee on 2012 W-2’s.  Companies with fewer than 250 employees will need to comply with this requirement beginning with 2013 W-2 reporting. Premiums for standalone vision and dental plans, Group Term Life, Group Short Term Disability and Group Long Term Disability are not included.  Although the premium for health contributions is reported on the W-2 form, they are not taxable.
  • Preexisting Conditions: Plans may not impose any preexisting condition exclusion for children under age 19.
  • No Lifetime Limits on coverage of ‘Essential Benefits’: (as defined by the Department of Health and Human Services). May only impose restricted annual limits on the dollar value of ‘Essential Benefits’.
  • Preventive Health Services: (as defined by the Department of Health and Human Services) must be covered and no cost sharing requirements may be imposed for these services.
  • Medical Loss Ratio – 80/20 Rule: requires health insurance companies (depending on their size) to spend at least 80 percent of premium dollars on health insurance claims and clinical activities for improved healthcare quality. Insurance companies that do not meet the 80/20 Medical Loss Ratio (MLR) standard must provide their policyholders a rebate for the difference no later than August 1, 2012. (Additional clarification provided below.)

Effective in 2013

  • Additional Hospital Insurance Tax on High-Income Taxpayers: Starting in 2013, high-income individuals will pay an additional 0.9 percentage points on earned income over $200,000 ($250,000 if married). Currently, the Medicare payroll tax is 2.9% on all wages — with the worker and employer each paying 1.45%.
  • Medicare Tax on Investment Income: Imposes a tax on individuals equal to 3.8% of the lesser of the individual’s net investment income for the year or the amount the individual’s modified AGI exceeds a threshold amount.
  • Medical Care Itemized Deduction Threshold: Threshold for the itemized deduction for unreimbursed medical expenses is increased from 7.5% of adjusted gross income (AGI) to 10% of AGI for regular income tax purposes. (Effective 2013 generally, 2017 for certain taxpayers).
  • Health Flexible Spending Arrangements: Beginning with 2013 plan years, the maximum for Flex Spending Account (FSA) pretax salary deferral is $2500.  Be sure to amend your FSA plan at renewal time accordingly.

Effective in 2014

  • Premium-Assistance Credit: Refundable tax credits that eligible taxpayers can use to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through a state health benefit exchange.
  • Reporting Requirements: Requires insurers (including employers who self-insure) that provide minimum essential coverage to any individual during a calendar year to report certain health insurance coverage information to both the covered individual and to the IRS.
  • Cafeteria Plans: A qualified health plan offered through a health insurance exchange is a qualified benefit under a cafeteria plan of a qualified employer.
  • Employer Responsibility: An “applicable large employer” that does not offer coverage for all its full-time employees; offers minimum essential coverage that is unaffordable; or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%; is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.If a large employer does not offer qualified affordable coverage then an employee can go to the exchange.  If the employee gets a subsidy then the employer must pay a $250 a month tax penalty (not deductible) for each employee receiving coverage through the exchange that gets a subsidy not to exceed the aggregate penalty for not offering coverage.

    Any large group employer not offering coverage and having at least 1 employee obtaining coverage through an exchange with a subsidy must pay a $166 per month tax penalty (not deductible) to the government (this equates to a $2,000 Annual penalty).

    In 2014, small employers of fewer than 50 employees have no penalties.  If they offer coverage that is affordable and qualified (no more than 9.5% of pay for employee coverage and at least a bronze level coverage) then the employee is not eligible to buy coverage through the exchange.

Additional Details You Should Know About:

Medical Loss Ratio (MLR) Rebate Distribution
If you receive a MLR distribution, you will be required to develop a plan to distribute the rebates that your insurance carrier declares.  As of today, HealthPartners is the only local carrier to announce they will be issuing an MLR rebate and only to a very small subset of their clients.  HealthPartners has already contacted those affected.

For future reference, if you receive an MLR rebate, the method of allocating the rebate has been provided in Health and Human Services interim regulations, and directs insurers to distribute the entire rebate to the group policyholder.  The group policyholder is required to use the portion of the rebates attributable to the amount of premiums paid by the subscribers for the benefit of the subscribers, insuring that enrollees in such plans receive the benefit of the rebates.

Three methods of distribution are allowed:

  1. to reduce the subscribers portion of the annual premium for the subsequent policy year for all subscribers covered under the group health policy in the subsequent year; or
  2. to reduce subscribers portion of the annual premium for subsequent policy year for only those subscribers covered by the group health policy in the year for which the rebate was based; or
  3. to provide a cash refund only to subscribers that were covered by the group health policy on which the rebate is based.

All three options are acceptable.  The most administratively simple process is to issue a premium reduction in the subsequent year for those participating in the plan in the subsequent year.

If you are currently covered by HealthPartners, an MLR rebate may be announced in the near future.  Otherwise, it is unlikely this provision will apply to you this year.

Summary of Benefits (SBC’s)/Uniform Glossary (UG)
Watch for the Summary of Benefits and Coverage (SBC) and Uniform Glossary that your insurance carrier has developed, and include those new documents in Open Enrollment packets for 2013. These new documents must be provided to employees at least 30 days prior to renewal (or as early as reasonably possible) for plans renewing after 9/23/12.  SBC’s will also be required for HRA’s and Flexible Spending Accounts.

Patient Centered Outcomes Research
Determine if your plan is subject to a “PCOR” fee (Patient Centered Outcomes Research) also known as “CER” (Comparative Effectiveness Research).

This fee applies to insured plans (fee paid by the insurer) and self-insured plans (fee paid by the plan sponsor). Self-insured plans include HRAs.  For plan/policy years ending on or after October 1, 2012 and before October 1, 2013, the fee is $1, multiplied by the average number of covered lives (including dependents). The fee is increased to $2 for plan years ending on or after October 1, 2013 and may be further increased on or after October 1, 2014. Your TPA will have additional information.

Health Insurance Exchange
Prepare to notify employees of the availability of Health Insurance Exchanges by March of 2013.  (While this notification will be required, at this time we are waiting for additional guidance regarding the availability of the health exchange in Minnesota, since Minnesota has not passed a specific Exchange bill yet.)

Links to More Information
PPACA timeline for implementation
Impact to Individuals
Impact to Small Companies
Impact to Large Companies

Article Contributors:

Gary Helm
Bearence Management Group
651.379.7906 Direct
Email Gary

John Cleveland
The Cleveland Company, Inc.
952.885.2701 Direct
Email John

PCS Tax and Support Departments

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, CPA or HR Professional.

Small Businesses and the Affordable Care Act

Monday, July 23rd, 2012

Health Care ReformYou know the value of providing health insurance to your employees but it can be a real challenge for small businesses. On average, small businesses pay about 18% more than large firms for the same health insurance policy because small businesses lack the purchasing power that larger employers have. The Affordable Care Act provides tax credits, and soon, the ability to shop for insurance in Exchanges that may help close the gap.

Top Things to Know for Small Businesses

  • For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.
  • If you have up to 25 employees, pay average annual wages below $50,000 per employee, and provide health insurance, you may qualify for a small business tax credit of up to 35% (up to 25% for non-profits) to offset the cost of your insurance.
  • Employer-based plans that provide health insurance to retirees ages 55-64 can now get financial help through the Early Retiree Reinsurance Program. This program is designed to lower the cost of premiums for all employees and reduce employer health costs.
  • Starting in 2014, the maximum small business tax credit increases to 50% for qualifying businesses, (35% for non-profits).
  • In 2014, small businesses with generally fewer than 100 employees can shop in an Affordable Insurance Exchange, which are designed to make buying health coverage easier and more affordable.
  • Exchanges will offer a plans that meet certain benefits and cost standards and can help you look for and compare private health plans, get answers to questions about your health coverage options, determine tax credit or health program eligibility, and will allow you to enroll in a health plan that meets your needs.
  • Employers with fewer than 50 employees are exempt from new employer responsibility policies.

Here are two great resources for more information:

Health Care Law and You

Affordable Care Act Tax Provisions

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, CPA or HR Professional.

NEW HEALTH CARE TAX CREDIT MAY SAVE SMALL BUSINESSES BIG MONEY

Sunday, April 25th, 2010

Health Insurance CreditIncluded in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the small business health care tax credit is one of the first health care reform provisions to go into effect.  The credit 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 of the cost of single coverage for their employees in 2010.  Here are the highlights of the new tax credit:

  • For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible tax exempt organizations.  On January 1, 2014 the rate increases to 50% (35% for tax-exempt employers).
  • The maximum credit goes to smaller employers with 10 or less full-time equivalent (FTE)* employees paying an average of $25,000 or less.
  • The credit is phased out once an employer reaches 25 FTEs or more – or that pay an average wage for their employees which exceeds $50,000 or more per year.

* Since the eligibility rules are based on full-time equivalency, (40 hours per week per employee), it is possible that an employer that utilizes part-time employees may qualify for full credit even if they employ more than 10 employees.

To find out if your business is eligible, simply follow the three simple steps fact sheet  provided by the IRS.  You can also run through several scenarios to see how the credit applies to employers in different circumstances.

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.

The IRS is beginning a postcard mailing to more than 4 million small businesses and tax exempt organizations to help raise awareness of this benefit.  Please follow the links below for more helpful updates from the IRS:

View the postcard

More information about the credit from the IRS 

Step by step guide 

Frequently asked questions 

News release IR-2010-38 – description of the credit and how to claim it

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.