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Tax & Insurance Impact of Affordable Care

Tax & Insurance Impact of Affordable Care. Brian Meyers, CPA Anders Health Care Services. Work Smarter • LeagueOfHealthcareExperts.com • 314 -541-2220. 2013 Tax Update. Jessica A. Johnson, CPA. Work Smarter • LeagueOfHealthcareExperts.com • 314 -541-2220. Agenda.

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Tax & Insurance Impact of Affordable Care

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  1. Tax & Insurance Impact of Affordable Care Brian Meyers, CPA Anders Health Care Services Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  2. 2013 Tax Update Jessica A. Johnson, CPA Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  3. Agenda • Fiscal Cliff Tax Changes • Affordable Care Act Tax Implications • Examples • Questions • Planning Considerations Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  4. The New Law • American Taxpayer Relief Act of 2012 • Passed by Congress Overwhelmingly Jan 1, 2013 • Bush tax cuts made permanent for families with less than $450k of taxable income • Delayed the sequester (billions of dollars in across-the-board spending cuts) for another two months. • New legislation made sequester cuts permanent Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  5. 2013 Tax Brackets(Married Filing Jointly) Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  6. History of Tax Brackets Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  7. Capital Gains/Dividends • Capital Gains and Qualified Dividends • 20% - For taxpayers in the 39.6% Bracket • 15% - For taxpayers in the 25% - 35% Brackets • 0% - For taxpayers in the 10 or 15% Brackets • Qualified Dividends not taxed at ordinary income rates. Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  8. Alternative Minimum Tax Permanent patch introduced, adjusted for inflation each year 60 million taxpayers spared from AMT

  9. Payroll Tax Increase • FICA taxes • 6.2% Social Security – Employee and Employer • 1.45% Medicare – Employee and Employer • Payroll Tax “Holiday” • 2011 and 2012 • 4.2% Social Security – Employee Contribution • 2013 – 6.2% Social Security Employee Contribution is back

  10. Itemized Deduction Phase Out • “Pease Limitation” of itemized deductions is reinstated • 3% phase out of itemized deductions for married couples with AGI in excess of $300k Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  11. Personal Exemption Phase Out “PEP phase out” of 2% of for each $2,500 or portion there of by which AGI in excess of $300K PEP completely phased out for AGIs exceeding $425k Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  12. Misc. Individual Items • Child tax credit extended permanently • $1,000 maximum per child • Child and dependent care credit permanently extended • Credit available for up $6,000 of expenses per family • American Opportunity Tax Credit – extended through 2017 Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  13. Estate & Gift Tax • Permanent 40% maximum estate/gift tax rate • 2013 estate/gift tax exclusion - $5.25 million • Inflation-adjusted annual amount • Portability made permanent • 2013 Gift Tax Exclusion - $14,000 Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  14. Business Tax Provisions • Accelerated Depreciation • IRC 179 Deduction was increased to $500k on the first $2 million of purchases • 50% Bonus depreciation • R&D Credit extended through 2013 Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  15. Affordable Care Act – 2013 Tax Changes • New 3.8% Surtax on investment income • The tax will be imposed on the lesser of • Net investment income • The excess of AGI over $250K for married couples Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  16. Affordable Care Act – 2013 Tax Changes • New 3.8% Surtax on investment income Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  17. Affordable Care Act – 2013 Tax Changes • Additional 0.9% Medicare tax on earned income • Employee’s portion subject to additional tax for earned income exceeding $250K for married couples • Additional withholding from wages begins at $200K • Applies to earned income from flow through activities Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  18. Individual Case Study Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  19. Individual Case Study 2012 Tax - $127,090 2013 Tax - $140,224 Increase of $13,134 Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  20. Individual Case Study $2,274 $5,595 $5,265 Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  21. Planning Considerations Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  22. Minimize AGI • Harvest capital losses • Minimize income from IRA distributions • Don’t forget any Schedule C, Schedule E, or Schedule F expenses • Utilize any above-the-line deductions • Contributions to HSAs, self-employed retirement accounts, and traditional IRAs Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  23. Minimize NII Invest in tax-exempt bonds Minimize investing in securities that pay dividends Increase participation to make passive income non-passive Convert passive income to salary (however, then exposed to .9% payroll tax) Capital loss harvesting Installment sales Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  24. Affordable Care Act Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  25. Overview Acts passed in 2010 Patient Protection and Affordable Care Act Health Care and Education Reconciliation Act Political environment Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  26. Tax and Regulatory Changes Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  27. Current Changes Provide dependent coverage up to age 26 Remove co-pays for certain prevention and care Tax credits available to small employers Rebates provided for not meeting medical loss ratios Nutritional content disclosure 10% tax on indoor tanning Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  28. Additional Regulations • Pharmaceutical companies • Insurance companies • Hospitals • Medicare/Medicaid • Tort litigations • Medical device manufacturers Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  29. More Tax Changes • HRA, FSA, HSA or Archer MSA • Disallowed OTC drugs not prescribed • Tax on nonqualified distributions from HSA or MSA increases to 20%

  30. 2013 Changes Limit FSA contributions to $2,500/year with COLA adjustment Additional tax on wages and investment income for individuals Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  31. 2014 Insurance Reform Individual Mandate – all US citizens and legal residents required to have health insurance Create Exchanges for insurance No denial for “pre-existing conditions" Employers with >200 employees automatically enroll in health insurance plans Out-of-pocket, premium and deductible limits Limit waiting period for coverage Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  32. Insurance Rebates Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  33. Insurance Rebates Rebates to employers when medical loss ratios are not met 85% of premiums must be spent on claims or health care quality improvement 80% for small-group and individual markets States can establish higher MLR standards Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  34. Insurance Rebates • Rebates issued to employer for group plans • Determine whether or not the rebate must be distributed • Subject to ERISA? • Who pays premiums? • Were premiums pre-tax or after-tax? • Terminated/separated employees Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  35. Small Employer Health Insurance Credit Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  36. Health Insurance Credit Small Employers Provide health insurance to employees 25 or fewer employees Average annual wages less than $50,000 Aggregation rules apply Estimated 4 million businesses eligible, only 228,000 taxpayers took advantage Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  37. 2010-2013 Credit Full credit for 10 or fewer employees with average wages up to $25,000 Employer must contribute at least 50% of premium for all employees Max. 35% of employer contribution to insurance premiums Limited to 25% for NFPs Not applicable to employer contributions to HSAs, FSAs, etc. Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  38. Source: Congressional Research Service, Summary of Small Business Health Insurance Credit Under PPACA (P.L. 111-148) 3 (Apr. 5, 2010)

  39. 2014-2015 Credit “Guaranteed” through 2013 plus a maximum of 2 consecutive years after Credit amount rises to max 50% (35% for NFPs) Only insurance purchased from Exchanges will qualify after 2013 Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  40. Slide #94 from CCH Source: Congressional Research Service, Summary of Small Business Health Insurance Credit Under PPACA (P.L. 111-148) 3 (Apr. 5, 2010)

  41. Calculating the Credit Report on Form 8941 Test for eligibility Average wages = Total wages / FTE Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  42. Calculating the Credit • Determining full-time equivalent employees • Do not count • Self-employed individuals • Partners • 2% shareholders for S corps • 5% owners of C corps • Many relatives of above • Seasonal workers Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  43. Calculating the Credit • Determining full-time equivalent employees • Total hours of service for all eligible employees by 2,080 • Non-hourly employees are capped at 8 hours/day and 40 hours/week • Each employee capped at 2,080 hours • i.e. 10,500 total hours = 5 FTE employees Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  44. Calculating the Credit • Determining wages • All wages paid during the taxable year • Includes OT and bonuses • All wages subject to FICA (not limited to wage base) Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  45. Credit Example • Facts • 5 Employees • Total Hours in 2012: 7,000 • Total Wages in 2012: $60,000 • Total Employer Paid Premiums: $6,000 (all single coverage) • 7,000/2080 = 3 FTE • $60,000/3 = $20,000 Average Annual FTE Wages • $6000 X 35% = $2,100 total credit Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  46. Employer Mandate Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  47. Employer Mandate In 2014, an “applicable large employer” may be liable for an “assessable payment” if it “fails to offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan.” Imposed for any month at least one covered employee obtains coverage eligible for premium tax credit or cost-sharing benefits Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  48. Applicable Large Employer Employer who employed an average of at least 50 full-time equivalent employees on business days during the preceding calendar year. Work Smarter • LeagueOfHealthcareExperts.com • 314-541-2220

  49. Employees Full-time employee average at least 30 hours per week* Seasonal workers excluded up to 120 days FTE = Hours of all part-time divided by 120* Safe harbors – IRS Notice 2012-58 Aggregation rules Owner-employees not excluded from determining “applicable large employer” status *Further guidance yet to be released

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