Tax Implications in the Patient Protection and Affordable Care Act (H.R. 3590)

The Patient Protection and Affordable Care Act (H.R. 3590) was passed by Congress successfully in mid-March 2010. What's obvious is that health care was dramatically changed. What isn't as obvious are the many relatively important tax implications contained in the new law. In addition, The Reconciliation Act of 2010 (H.R. 4872) has been passed by the House (but not yet the Senate) and may include more tax provisions.

Here are some of the most important of the many important tax provisions that are included in H.R. 3590 that will now go in to effect:

Small Business Tax Credit: Businesses with 25 or fewer employees and average annual wages of $40,000 or less will be eligible for a credit of up to 50% of non-elective contributions that the company makes on behalf of an employee for insurance premiums. Those business which this credit applies to will receive a 35% credit on payroll taxes.

Companies that are smaller (beginning with 10 or fewer employees and average wages of less than $20,000) will receive 100% of the credit. It's slowly phased out until 25 or fewer employees.

Excise Tax on Uninsured Individuals: According to IRC § 5000A, citizens and residents must maintain minimum amounts of health insurance coverage. Individuals who do not meet this requirement will pay a $750 per adult excise tax, or half of the adult tax for a child (not to exceed 300% of the adult tax per household). This penalty will be phased in 2014-2016 and will then be subject to inflation. Criminal penalties will be faced by those who do not comply.

Reporting Requirements: Employers are required to provide minimum insurance coverage and report to the IRS and the covered individual. This applies to those who are self-employed also.

Medical Care Itemized Deduction Threshold: According to H.R. 3590, effective after December 31, 2012, itemized deductions for unreimbursed medical expenses have an increased threshold: it's been increased from 7.5% to 10% of AGI (adjusted gross income) for income tax purposes.

Additional Hospital Insurance Tax on High-Income Taxpayers: The current employee portion of the hospital insurance tax part of FICA, which is 1.45% of covered wages, will be increased by .9% on wages that surpass $250,000 per couple or $125,000 in the case of a married individual filing separately. For those who are self-employed, the same applies to the hospital insurance portion of SECA.

Employer Responsibility: Large employers (those companies that employ 50+ people) must provide coverage for all it's full-time employees or face a fee. Employers that face fees will have violated one of the following requirements: offering minimum essential coverage that is unaffordable or offering minimum essential coverage that consists of a plan under which the plan's share of the total allowed cost of benefits is less than 50%.

Tax on HSA Distributions: H.R. 3590 states that health savings accounts (HSA) and Archer medical savings accounts (MSA) will now be subjected to 20% of disbursements for non-qualified medical expenses, effective during tax years starting after December 31, 2010.

Flexible Spending Account: According to The Patient Protection and Affordable Care Act (H.R. 3590), the maximum reimbursable amount for an employee and their benefits for incurred medical expenses, under a flexible spending account for a health plan, must not exceed $2,500 per year. This provision begins after December 31, 2012.

"Tax Provisions in the Health Care Act". Journal of Accountancy. http://www.journalofaccountancy.com/Web/20102724.htm