Here is a listing of various tax effects having to do with the Affordable Care Act...
High wage earners
, with a $250,000 threshold for married filing jointly, $125,000 for married filing separately, and $200,000 for all others, must pay a Medicare tax of an additional 0.9%, for a total tax of 2.35%. Those with an income of $200,000 or more have this tax withheld at the payroll level during the year, but adjustments are needed once annual income is determined – which can result in additional taxable income.
Also, Medicare tax of 3.8% is assessed on net investment income
of high wage earners
, which includes passive
gross income from interest, dividends, royalties, rents
, annuities, gross income derived from a trade or business, and gain attributable to the disposition of property.
More tax effects....Itemized deductions on Schedule A of Form 1040, which expands the medical expense deduction from 7.5 to 10%
for those under age 65. Further, Flexible Spending Accounts (FSA) have been capped at $2,500
. If you sponsor one of these plans you must have all document amendments in place by the end of 2014.
For small businesses (and non profits)
The small business health care credit
is available to employers with 25 or fewer full-time equivalents (FTEs) with wages averaging less than $50,000 per year. The employer must pay at least 50% of these employees’ health insurance costs
. In 2014, the credit is 50% for for-profit entities and 35% for tax-exempt employers
– and it is only available if the insurance is purchased through the Marketplace.
Tax returns can be amended for previously missed credits.
The individual mandate is in effect. Those without health insurance coverage will pay a penalty, which in 2014 is the greater of either $95 or 1% of modified adjusted gross income and $47.50 per dependent under the age of 18.
this can result in a maximum 2014 penalty of $285. For 2015 and 2016, the amounts are $325 or 2% of income and $695 or 2.5% of income respectively. The maximum penalty is equivalent to the national average premium for a bronze plan on the Marketplace.
Employer mandate updates
The U.S. Treasury Department issued an update that gives mid-sized employers an additional year before the employer mandate takes effect. Employers with 50 to 99 FTEs now have until January 2016
to offer health insurance or pay a penalty.
The employer mandate still applies to employers with 100 or more FTEs.
These employers must offer insurance effective Jan. 1, 2015 or pay a penalty. The percentage of FTEs required to be covered has been reduced to 70% for 2015, but will increase to 95% in 2016.
Part-time and variable hour employees are converted to FTEs in order to determine how many employees a company has under the employer mandate. Calculated on monthly hours, the formula is the total working hours of all FTEs for a month divided by 120.
Seasonal employees with less than 120 days a year can be excluded. Employers who already offer affordable coverage need to consider that variable hour part-time employees could transition to a FTE and be eligible for coverage.
Measurement periods under ACA regulations should be utilized to consider both variable hour employees
as well as the overall employer mandate.
If your client sponsors a fully insured health plan, the health insurance carrier is required to pay the Patient Centered
Outcomes Research Institute (PCORI) fee directly. However, if your client self-funds their health plan, they were required to pay the $2 fee by July 31, 2014 on Form 720. With annual fee increases, there is a sunset provision for plan years ending Oct. 1, 2019.
If your company has an FSA that isn’t affiliated with a medical program, this account is considered to be self-funded and could be subject to PCORI fees for employees. Health reimbursement arrangements should be integrated with health insurance,
and are still considered self-funded for the PCORI fee requirement.
Reinsurance fee due in January 2015
Sponsors of self-funded health insurance plans should have reported the number of people covered by their plans to the Department of Health and Human Services for the 2014 plan year by Nov. 15, 2014. This includes employees, spouses
and dependents covered under the plan.
The IRS has specified four specific counting methods for this purpose: Actual count, Snapshot dates, Snapshot factor, Form 5500 method.
Pay.gov is the reporting site for employers to report their count. After reporting, the employer will receive a notice regarding the reimbursement fees due, which will equal $63 per covered life for 2014. The first installment will be due to HHS by Jan. 15, 2015. Fully insured plans will collect these fees through the insurance premiums paid. The reimbursement fee applies to each medical plan sponsored by the employer and must be submitted on a per plan basis.
Implications for 2015 and 2016
New reasons employees can change their health care coverage
With the issuance of IRS Notice 2014-55, there are now two reasons employees covered under a Section 125 plan
can change health care options: 1) an employee can cease participation in an employer-sponsored plan in order to enroll in the Marketplace without an otherwise qualified change in status, and 2) variable-hour employees (those who may work less than 30 hours a week but were determined to be full-time during a measurement period and are otherwise enrolled in the employer-sponsored plan) can also cease participation in order to enroll in the Marketplace when their employment status drops below 30 hours a week.
Employers must adopt an amendment allowing these elections on or before the last day of the plan year. For 2014, the amendment must be adopted by Dec. 31, 2015. Participants must be notified of these changes. An election to revoke coverage on a retroactive basis cannot be allowed under any circumstance.
Forms 1094-B, 1095-B, 1094-C and 1095-C, for the 2015 plan years will be due to the IRS in 2016.
These forms will be used to report:
1) the different types of insurance offered
2) which employees are covered
3) various other details of health plans.
The IRS will use the data to compute both the individual and employer mandates under the ACA. As these reporting forms are detailed and complex (and we might not be bright enough -according to the ACA architect), I recommend employers consult with their benefits professional and accounting specialist before completing them.