Affordable Care Act Tax Provisions
The Affordable Care Act, enacted on March 23, 2010, contains certain tax provisions that impact employees and employers and take effect this year, as well as over the coming years. Certain provisions currently in effect are highlighted below:
Small Business Health Care Tax Credit - This credit is designed to encourage small businesses and certain tax-exempt organizations to offer, for the first time, or maintain health insurance coverage for their employees. The credit is available to small employers that pay at least half of the cost of single coverage for their employees.
Employer-Provided Health Coverage — Not taxable; reporting is voluntary for all employers for 2011 and small employers for 2012 – The Act requires employers to report the cost of coverage under an employer-sponsored group health plan. This reporting is for informational purposes only. It is intended to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. Under a notice issued by the Internal Revenue Service last fall, this requirement is optional for all employers in 2011. The IRS provided further relief for smaller employers filing fewer than 250 W-2 forms by making the reporting requirement optional for them (at least for 2012) and continuing this optional treatment for smaller employers until further guidance is issued.
Changes to Flexible Spending Arrangements – With certain exceptions, the cost of an over-the-counter medicine or drug, for purchases made after January 1, 2011, cannot be reimbursed from Flexible Spending Arrangements or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. Because the new standard applies only to purchases made on or after Jan. 1, 2011, claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011 (if permitted by the employer’s plan). Similar rule apply with respect to Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).
Group Health Plan Requirements - The Act establishes a number of new requirements for group health plans. The IRS provided interim guidance on changes to the nondiscrimination requirements for group health plans in Notice 2011-1. That notice provides that employers will not be subject to penalties until after additional guidance is issued.
Medicare Shared Savings Program - The Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to reduce costs and help improve the quality of care provided to Medicare beneficiaries.
Adoption Credit - The maximum adoption credit was increased to $13,170 per child, up from $12,150 in 2009. Additionally, the credit is now refundable (i.e., eligible taxpayers can use the credit even if they owe no tax for that year). The credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply. In addition to filling out Form 8839, Qualified Adoption Expenses (see instructions), eligible taxpayers must include with their tax returns one or more adoption-related documents to avoid delaying receipt of a refund.
Additional Requirements for Tax-Exempt Hospitals - The Act adds requirements in the Internal Revenue Code that tax-exempt hospitals must meet to maintain their tax-exempt status. Information returns to be submitted by tax-exempt hospitals include new questions relating to the new requirements that are in effect for tax years beginning after March 23, 2010. These questions address financial assistance, emergency medical care, billing and collection policies and charges for medical care.
If you have any questions about the above tax provisions, please do not hesitate to contact any member of our tax practice.