Patient Protection and Affordable Care Act: How its tax provisions impact individuals and businesses

The tax provisions of the Patient Protection and Affordable Care Act (the “Act”) will impact most taxpayers. To simplify matters, it is helpful to separate the changes that will take place in 2010 and 2011 from future changes.

Changes in 2010 and 2011:

– Starting in 2010, small businesses will receive tax credits for purchasing group health coverage (from 2010 to 2013, the maximum credit is 35%; in 2014, the maximum credit is 50%). Even tax-exempt businesses are entitled to tax credits, albeit the maximum credit is smaller.
– On March 23, 2010, parents became able to cover their adult children (up to age 27) under their tax-qualified employer-provided health plan.
– Limits will be imposed on flexible savings arrangements – after 2010, only prescription medications will be covered (with some exceptions) and starting in 2013, there will be a $2,500 annual cap on covered expenses.
– After December 31, 2010, small employers can provide “simple” cafeteria plans.

Future Changes:

– In 2013, taxpayers with more than $200,000 in earned income ($250,00 for joint filers) will pay an additional 0.9% Medicare tax on the excess and an additional 3.8% Medicare tax on unearned income, including interest, rents, and royalties. Also, the threshold for deducting unreimbursed medical expenses will rise from 7.5% to 10% of AGI and contributions to flexible spending accounts for medical expenses will be limited.
– In 2014, individuals who are not eligible for government-provided coverage will be penalized if they fail to purchase essential health coverage. Also, people with income between 133% and 400% of the federal poverty level will be eligible for tax credits/subsidies to help pay for insurance premiums.
– In 2014, employers who do not provide insurance coverage will face tax penalties.
– In 2018, high-cost group plans will be subject to a 40% nonrefundable excise tax on their annual premiums in excess of $10,200 for individual coverage and $27,500 for family coverage.

For more information on the implications of the Patient Protection and Affordable Care Act, please contact Robert S. Iwrey, Esq. at (248) 996-8510, or visit the HLP website.