The president has recently signed into law the final piece of his promised
Health Reform legislation. Once fully phased, which is not scheduled to
happen until 2018, the legislation will provide health care coverage to some
32 million uninsured and make it more affordable for millions more.
Effective this year and going through
2013, the Health Reform legislation provides a new tax credit for small
employers that purchase health insurance for their employees. The credit
will be claimed on the employer’s income tax return. To qualify as a small
employer for this credit, you must employ no more than 25 full time
employees during the tax year, pay annual full time wages that average no
more than $50,000 for the year and have a qualified health insurance plan
under which you pay at least 50% of the premiums for employees who enroll in
the plan. The credit generally equals 35% of the amounts paid by the
employer during the year for the employee coverage. However, the full amount
of the credit is available only for employers that employ 10 or fewer full
time employees and have average full time wages of less than $25,000 for the
year. Also no credit is allowed for premiums paid on behalf of partners,
sole proprietors, 2% shareholders of an S corporation, 5% owners of the
employer, and dependents of these individuals.
Effective March 30, 2010, the Health
Reform legislation provides that self-employed individuals can deduct
insurance coverage for their children who have not attained age 27 as of the
end of the year. Similarly, employees can exclude from their taxable income
the amounts their employer pays for health care insurance and expense
reimbursements for their children who have not attained age 27 as of the end
of the year. To qualify for this tax break, the child must be the
individual’s son, daughter, stepson, stepdaughter or eligible foster child.
The child does not have to be the individual’s dependent.
Beginning in 2011, employers will
have to start reporting the value of health insurance coverage they provide
to employees on the employee’s Form W-2. Also beginning in 2011, the Health
Reform legislation provides that only insulin and doctor prescribed medicine
qualifies for tax-free reimbursement through a health FSA, HRA, HSA, or
Archer MSA. In 2011, the additional tax for HSA withdrawals made before the
owner turns age 65 that are not used for qualified medical expenses is
increased from 10% to 20%, and Archer MSA withdrawals for unqualified
medical expenses increases to 20% from 15%. A new cafeteria plan, known as a
Simple Cafeteria Plan, will be available in 2011 for small employers that
employed an average of 100 or fewer employees during either of the two
preceding years. This plan should make is simpler for small employers to
provide tax-free benefits to their employees.
Beginning in 2012, businesses that
pay more than $600 during the year to corporate providers of property and
services will have to file an information report with each provider and the
IRS. This will likely be done on Form 1099-MISC, Miscellaneous Income.
The Health Reform Legislation does
not end in 2012; there are several provisions that will take place in 2013,
2014 and the final piece of legislation in 2018. Call our office if you have
any questions or need additional information.