By Kevin Begley

Taxpayer Impact Summary

Small business owners and individual taxpayers will begin feeling the impact of the Supreme Court’s decision to uphold the Patient Protection and Affordable Care Act of 2010 in 2012 and beyond. While the additional complexity and cost for providing healthcare benefits during the next several years has received much attention because of its tremendous impact on healthcare insurers, providers and the pharmaceutical industry, now small businesses and individuals must pay close attention to the myriad provisions to avoid financial penalties.

Impact Timeline for Businesses

2012

• Determine whether you are eligible for the “Small Business Health Care Tax Credit” of 35% for health insurance premiums. 
• If you receive medical loss ratio rebates, prepare to determine if a portion should be distributed directly to employees or used to otherwise benefit employees.
• Recognize that beginning with your next open enrollment period for your group health plans, you may have to distribute a new summary of benefits and coverage disclosure to your employees.
• Recognize that you may have to report the total cost of any group health plan coverage provided to employees on their 2012 W-2 forms.
• Amend cafeteria plans to reflect the new maximum employee contribution limit of $2,500 for flexible spending accounts beginning in 2013.

2013

• If you are a health insurer, you now will have a cap of $500,000 (per individual) for tax deductibility of executive compensation.
• Employer deduction for Medicare Part D subsidy will be eliminated.
• If you are a medical device manufacturer or importer, you now will be subject to a 2.3% excise tax.
• Depending on issuance of regulations, non-discrimination testing may be required this year or in 2014.

2014 

• “Play or Pay” mandate takes effect for employers with more than 50 full-time employees, with a $2,000 per employee penalty for non-compliance.
• If you have more than 200 employees, you will be required to automatically enroll all new employees in group health plan coverage.
• Determine access to state insurance exchange or the federally-funded exchange for health plans.

Impact Timeline for Individuals 

2013

• High income earners are subject to Medicare payroll tax increase of .9%.
• High income earners are subject to 3.8% tax on net investment income.
• Flexible spending account annual contributions are now limited to $2,500.
• Medical expense deduction floor increases to 10%.

2014

• Individual “Mandate” becomes effective, requiring maintenance of minimum level of health insurance or tax assessed of either a fixed dollar amount or percentage of income. 

Key Definitions

• Employer size - Be aware that employer size is important in determining eligibility for temporary health insurance credit (only applicable if 25 or fewer full-time equivalent employees), “play or pay” mandate (applicable if 50 or more full-time equivalent employees), participation in the insurance exchange program (only open to businesses with up to 100 employees) and automatic enrollment provisions (required if 200 or more full-time equivalent employees employed).
• Full-time employee - A full-time employee is defined as an employee working an average of 30 hours per week.
• Minimum value - Currently the Act stipulates that covering 60% of the cost of benefits the employer offers meets the minimum value threshold.
• Non-discrimination testing - Regulators are expected to offer guidance in the future, but if your business offers different groups of employees different types or amounts of benefits be cognizant of these pending rules.

We Can Help

Please understand that this tax alert is not an exhaustive summary of this new law, but is meant to highlight aspects which may impact your tax situation. For any specific tax questions you may have, contact our tax specialists and ask us how we can help.

Kevin Begley, CPA | 
Corporate Tax Principal

John Henegar, CPA, CMA | Tax Director

To discuss non-tax elements of the Act, please contact our healthcare industry specialists and ask how we can help. 

Ken Conner, CPA  |  Healthcare Principal

Cole Powell, CPA, FHFMA  |  Healthcare Principal

DOWNLOAD PDF