In March 2010, President Obama signed the Patient Protection and Affordable Care Act, and Health Care and Education Reconciliation Act of 2010, known together as the 2010 Health Care Reform Legislation.  This legislation will affect businesses, individuals, insurers and even the CPAs here at Archer Group.  Here are just a few of the key points from the legislation. 

Impact on All Employers

• Effective 2011 - Employers must report the value of health insurance plans on W-2s
• Effective 2011- All employer-sponsored plans will require amendments to plans including: Eliminate lifetime and annual limits on benefits, provide first-dollar coverage for preventative care, extend eligibility for dependent coverage (if offered) to employees' unmarried children who are not yet 27 years old
• Effective 2013 - $2,500 limitation on contributions to health FSAs.  No longer use FSAs, HSAs or MSAs for over-the-counter drugs.  Penalties for using these accounts for items that are not allowed, increased from 10 to 20% for HSAs and from 15 to 20% for MSAs.
• Effective 2014 (for employers who offer coverage) - No waiting period longer than 90 days to obtain coverage
• Effective 2014 (for employers who offer coverage) - Employers must offer a voucher to employees with an income less than 4X the federal poverty level whose share of the premium is greater than 8% but less than 9.8% of their income and who chooses to enroll in a state exchange rather than participating in the employer's group health insurance plan.  This voucher must be in an amount equal to what the employer would have paid in premiums for that employee, and can be applied by the employee toward their premiums in the exchange plan

Impact on Small to Midsize Employers

• Effective 2010-2013 (Employer size 25 or less) - Employers providing health care coverage for employees are eligible to claim a credit equal to 35% of nonelective contributions the businesses make on behalf of their employees for insurance premiums.  The employer must pay at least 50% of the premium cost and must pay a uniform percentage for all covered employees.  The premium amount taken into account is capped at amount of the average premium for the small group market in the state (or an area within the state) in which the employer offers coverage
• Effective 2014 onward (Employer size 25 or less) - Tax credit percentages described above will increase to 50%.  Employers with 10 or fewer employees and average wages of less than $25,000 will receive 100% of the credit
• Effective 2014 - All states must establish an exchange to facilitate the purchase of qualified health plans and establish a Small Business Health Options Program (SHOP) that will assist employers with less than 100 employees in obtaining group coverage.  A Consumer Operated and Oriented Plan (CO-OP) program will be created to facilitate the creation of non-profit, member-run health insurance companies.

Impact on Larger Employers

• Effective 2014 (Employer size >50) - Employers that do not offer coverage for all full-time employees, or offer inadequate coverage, are 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.  The number of employees is based on average employee count from the prior calendar year.
• Effective date not yet determined (Employer size >200) - Employers must automatically enroll employees into health insurance plans offered by the employer.  Employers must provide employees with notice of automatic enrollment and give the employees the ability to opt out of coverage.
• Effective 2017 (Employer size >100) - Employees will be able to join state exchanges, at the state's discretion.

Impact on Individuals

• Effective 9/23/10 - Insurers cannot impose lifetime limits on insurance coverage or cancel policies due to serious illness
• Effective 9/23/10 - Pre-existing condition exclusions for children are prohibited
• Effective 9/23/10 - Group health plans and health insurers that provide dependent care coverage must continue to make such coverage available for an adult child until age 26 (effective for plan years beginning after Sept. 23, 2010).  Reimbursements for medical care under an employer-provided accident or health plan are excluded from gross income for any employee's child who has not yet turned 27 by the end of the tax year (effective March 30, 2010).  IRS will apply the same rule to coverage under an employer-provided accident or health plan.
• Effective 2010-2014 - A temporary national high-risk pool will be created to permit adults with pre-existing conditions to obtain subsidized coverage.  The pool will be dissolved after 2014, when all insurers will be prohibited from excluding persons with pre-existing conditions.
• Effective 2013 (Medicare changes) - Medicare taxes increase to 2.35% on earnings over $250,000 for joint returns, $125,000 for married filing separate, or $200,000 for other individuals.  A 3.8% Medicare tax will be imposed on the lesser of net investment income or AGI over $250,000 for joint returns, $125,000 for married filing separate, or $200,000 for other individuals.
• Effective 2013 - The itemized deduction threshold for unreimbursed medical expenses is increasing to 10% of AGI (however it remains 7.5% for individuals age 65+ through 2016).
• Effective 2014 - All individuals must carry insurance or pay penalties - the greater of $95 or 1% of income over the filing threshold in 2014; $325 or 2% in 2015; and $695 or 2.5% in 2016 and beyond.  Penalty also due for each dependent who does not have coverage (fee is 1/2 adult amount for those under 18).  Certain hardship exceptions do apply. 

This information was all supplied by the AICPA through the WSCPA.  For more information on Health Care Reform please visit http://www.healthcare.gov/ for more detailed information.  There are areas for you to leave your comments as well.

Some interesting Income Tax Statistics from high-income individuals in 2007, gift tax returns in 2008 and trust income returns from 2002 through 2006.

• In tax year 2007 over 4.5 million returns were filed by taxpayers with adjusted gross income of over $200,000.  This is up from 4 million in 2006.  These returns account for over 3 percent of all returns filed in the 2007 tax year.
• In 2007 the 24 million individuals who itemized, reported deductions of $59 billion for noncash charitable contributions.  Of those, almost 7 million reported close to $53 billion in deductions on Form 8283, Noncash Charitable Contributions.  Form 8283 filers increased from 6 million in 2006, and the amounts claimed in donations increased almost 13 percent.
• In 2008, 257,000 gift tax returns were filed, 96 percent of which were nontaxable.  These gifts totaled $45 billion, most of which were cash (46 percent), corporate stock (24 percent) and real estate (17 percent).  The majority (52 percent) of these returns were filed by female donors.
• More than 400,000 simple trusts were analyzed in a panel study which revealed total income was $15 billion in 2002 and grew to $26 billion in 2006.  During the same period, total deductions rose from $12 billion to $15 billion.  Complex trusts also saw a marked increase from $28 billion in tax year 2002, to $60 billion in 2006.  Total deductions for this time period, increased from $15 billion to $20 billion in 2002 and 2006 respectively.

If these statistics have peaked your interest, the Statistics of Income Bulletin is available from the Superintendent of Documents, U.S. Government Printing Office, Box 371954, Pittsburgh, PA 15250-7954.  The annual subscription rate is $53.00, if you're only interested in one issue, the cost is $39.00.

The IRS has recently posted a revised payroll tax form that many eligible employers can use to receive the new payroll tax exemption.  This exemption is meant to encourage employers to hire and then retain new workers.  The exemption would apply to new hires after Feb. 3, 2010 and before Jan, 1, 2011.  The employer may qualify for a 6.2% payroll tax incentive.  Essentially this will exempt employers from paying their share of the Social Security tax on wages paid to these new hires after March 18.  There will be no effect on the employee's future Social Security benefits due to this reduction. 

Additionally, for each employee that qualifies, and is employed for at least a year, and whose wages did not significantly drop in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their tax return. 

For more information on the Hiring Incentives to Restore Employment (HIRE) act signed by President Obama March 18, see the IRS.gov, or the Questions and Answers page.

How to claim the payroll tax exemption

Employer's quarterly Federal Tax Return (Form 941) has been revised for use beginning in the second quarter of 2010.  The HIRE act does not apply to the first quarter, but applies starting in the second quarter.  Instructions for form 941 are now available on the IRS website.

The HIRE act does require that employers receive a signed statement from each eligible new employee, certifying under penalty of perjury that they were not employed for more than 40 hours during the 60 days before beginning employment with that employer.  Employers can use form W-11 to satisfy this requirement.  Although employers need this certification to claim both the payroll tax exemption and the new hire retention credit, they do not file these statements with the IRS, but instead retain them along with other payroll and income tax records.

Employers who are adding positions to their payrolls or filling existing positions (granted previous employees left voluntarily or were terminated for cause) will benefit from these tax incentives.  Family members and other relatives do not qualify for either of these benefits. 

Businesses, agricultural employers, tax-exempt organizations, tribal governments, and public colleges and universities all qualify to claim the payroll tax exemptions.  Federal, state, and local governments (other than public colleges and universities) and household employers are not eligible for these tax benefits. 

It's summertime and many folks turn to tanning beds and salons for a little sun-kissed color, but coming July 1st, there will be an additional 10% tax on those indoor rays. 

The IRS recently issued regulations outlining the 10% excise tax on indoor tanning services, and published these regulations in the Federal Register.

In short, indoor tanning service providers will collect the 10% tax at the time of purchase, and then pay these amounts to the government quarterly with IRS Form 720, Quarterly Federal Excise Tax Return.

This tax, however, does not apply to all services.  Phototherapy services from a licensed medical professional on his or her premises, and certain physical fitness facilities offering tanning services without an additional fee, will not be subject to the Tanning Services Tax.

For more detailed information on this new tax effective July 1st, please see the IRS Frequently Asked Questions page.

The IRS, and Treasury Department welcome your comments on this issue.