In a 5 to 4 decision, the Supreme Court ruled on June 28 that most of the Affordable Care Act of 2010 were constitutional. In addition to upholding the individual insurance mandate, the ruling means that tax changes included in the law were also upheld as constitutional.
With the tax provisions in the 2010 health care laws scheduled to take place over a multi-year time frame, it’s not always easy to remember what’s in effect now and what tax changes take affect later. An overview of selected provisions that might have an impact on you is as follows:
Health insurance credit
The general business credit implemented in 2010 remains available. For 2012, when your business employs fewer than 25 full-time equivalent employees with an average annual wage of less than $50,000, and you pay at least one-half of health insurance coverage costs, you can claim a credit for up to 35% of your premiums. After 2013, the credit increases to 50%.
Health coverage benefits you provide to employees are reportable on Form W-2. An exception and pending further IRS guidance, reporting is optional for employers filing fewer than 250 W-2s.
Information reporting to corporations
The requirement to provide Form 1099 to corporations from whom you purchased property or services of more than $600 was repealed along with the Form 1099 reporting requirement for rental property owners.
Medicare tax on earned income
Starting in 2013, a new 0.9% tax will apply to wages and self-employment income in excess of $200,000 for singles and $250,000 for married couples filing jointly.
Medicare tax on unearned income
Starting January 2013, a new 3.8% Medicare tax will be imposed on unearned income for single taxpayers with income over $200,000 and married couples with income over $250,000. Examples of unearned income are interest, dividends, royalties, and rental income. The special 3.8% Medicare surtax will apply to the lesser of net investment income for the year or the amount by which modified adjusted gross income (MAGI) exceeds $250,000 ($200,000 for single filers).
For 2012, you can claim an itemized deduction for unreimbursed medical expenses in excess of 7.5% of your adjusted gross income. For 2013, the threshold is raised to 10% for taxpayers under age 65.
Health account changes
The 20% penalty for non-qualifying distributions from your Health Savings Account (HSA) remains in effect. In addition, most nonprescription medicines continue to be ineligible expenses for purposes of your HSA, Flexible Spending Account (FSA), Health Reimbursement Account (HRA), and Medical Savings Account (MSA). The maximum annual contribution you can make to your FSA will be $2,500 was incorporated for the 2013 tax year.
The fee for failing to buy or maintain health insurance for yourself and your family begins in 2014, and will be reported on your federal tax return. In addition, if your business employs an average of 50 full-time employees and does not offer health insurance coverage, a nondeductible “shared responsibility” penalty will apply starting in 2014.
As a caveat to the above, future tax legislation could change these provisions, you should be aware of them in your tax planning for this year and next.
This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.