Today I was researching my options for health insurance coverage for me and my employees. I realized that this would be a good time to address some of the changes from the 2010 Health Care Act and how several of the tax provisions might affect your 2010 and 2011 federal income tax liability and reporting requirements.
If you run a business or small business, or if you’re self-employed, the following legislation may affect you:
• Credit for Employee Health Insurance Expenses of Small Business — Beginning in 2010, eligible small businesses can receive a nonrefundable tax credit of up to 35% (25% for tax-exempt small employers) of the total premium cost of providing health care to their workers. The credit will be taken when you file your 2010 tax return.
• Trade or Business Expenses — Effective March 30, 2010, self-employed taxpayers can deduct amounts paid during the taxable year for medical insurance covering the taxpayer, the taxpayer’s spouse, dependents, and children under age 27.
Changes impacting individuals include:
• Expansion of Adoption Credit and Adoption Assistance Programs — Effective for taxable years beginning after 2009, the adoption credit and adoption assistance programs are expanded by increasing the maximum amount of adoption expenditures that may be claimed as a credit to $13,170, including a child with special needs. Other changes apply as well.
• Amounts Received Under Accident and Health Plans — Effective March 30, 2010, you are no longer required to include in your income employer-provided accident or health plan reimbursements for medical care expenses paid on behalf of your child up to the age of 27, a big change from the current age of 19 or 24 if the child is a full time student.
Are you still wondering how health care legislation will impact you and your employees? This is a confusing law and though some provisions will not take effect for several years, many changes could affect you today. Also, some tax-planning opportunities and requirements become effective in 2010 or 2011.
Below are some key provisions of the health care acts (P.L. 111-148 and P.L. 111-152) that impact employers and health plans and generally are effective in 2010 or 2011. Note that some effective dates apply to plan years or taxable years.
Effective September 23, 2010:
• Insurers and group health plans that offer dependent coverage are required to allow uninsured children to remain on their parents’ health insurance through age 25.
• Small and large group market plans are prohibited from imposing lifetime limits on coverage.
• Plans must provide coverage, without cost-sharing, for preventive services and immunizations.
• Insurance companies are prohibited from rescinding coverage, except in cases of fraud or intentional misrepresentation of material fact.
• No discrimination based on the wages of employees.
• All health insurance plans are prohibited from excluding children under age 19 on the basis of a pre-existing condition.
• Employers must report on Form W-2 the cost of employer-sponsored health insurance.
• Health flexible spending accounts, health reimbursement arrangements, health savings accounts (HSAs) and Archer medical savings accounts (MSAs) may reimburse for medications that are prescribed drugs or insulin only (no over-the-counter medications).
• The tax on distributions from an HSA or Archer MSA that are not used for qualified medical expenses is raised to 20%.
• Small employers (average of 100 or fewer employees in either of two preceding years) may establish “simple cafeteria plans.”
Correct information is the key to good planning and these changes will affect most American taxpayers in one way or another. If you have questions about how health care reform will affect you, please give me a call.