April 7, 2014
Affordable Care Act (ACA) Obamacare Quick Fact Sheet – Tax Implications
• SMALL EMPLOYER – Employers with less than 50 Full Time Equivalent (FTE) employees.
• LARGE EMPLOYER – Employers with greater than 50 FTE employees.
• FULL TIME EQUIVALENT (FTE) – employees working 30 or more hours/week or at least 130 hours in a month.
• EMPLOYER SHARED RESPONSIBILITY PAYMENT (ESRP) – A nondeductible fee paid by employers if they do not offer insurance to employees. The fee is $2,000 per FTE employee and is in effect as of January 1, 2015. If the insurance is offered but does not meet the minimum requirements of the ACA, the fee is $3,000/FTE employee.
• SMALL BUSINESS HEALTH OPTIONS PROGRAM (SHOP) – the health insurance exchange where individuals may purchase health insurance as of 10/1/2013. As of January 1, 2014, all individuals must maintain qualified health insurance.
• NET INVESTMENT INCOME (NII) – most all passive income such as interest, dividends, real estate rental income, passive pass-through income, etc. is included in investment income. Properly allocated expenses (brokerage fees, investment interest, etc.) can be applied to reduce the NII.
• FEDERAL POVERTY LEVEL (FPL) – The Depart of Health and Human Services publishes annual federal poverty rates applicable to all states (Alaska and Hawaii are subject to separate rates). The current rate for a family of four is $23,550. The rate is adjusted based on number of individuals per household.
NOTE: Small Employers are not subject to the ESRP. They are also eligible for purchasing plans through the SHOP.
Tax Credits – Small Employers may still take advantage of the SMALL BUSINESS HEALTHCARE TAX CREDIT if they pay for at least 50% of covered premiums and have less than 25 eligible FTE employees whose average annual wages do not exceed $50,000. For tax years 2010 through 2013, the credit is equal to 35% of the annual premium paid with a corresponding offset in the premium deductions. Beginning January 1, 2014 the credit increases to 50%.
Large employers must offer health insurance to all FTE employees as of January 1, 2015 under the shared responsibility provisions of the ACA. This insurance must meet minimum requirements – NOTE: all plans offered by the majority of insurance carriers will meet the minimum requirements.
Employer Coverage: Employers offering insurance to employees must meet affordability requirements. Employee’s cost of the insurance must not exceed 9.5% of annual W2 wages – Medicare wages would be the measurement component. If the employee’s cost exceeds this amount, the plan does not meet minimum requirements and the employer would be subject to the $3,000 ESRP fee.
ALL EMPLOYERS will have annual reporting requirements for health insurance beginning January 1, 2015.
ALL EMPLOYERS who have self insured health plans are subject to a $1/covered individual annual fee.
ALL EMPLOYERS will be subject to a 40% excise tax on “Cadillac Health Plans” – plans exceeding annual value of $10,200 for individuals or $27,500 for families. The tax is imposed on the amount exceeding those values.
Beginning January 1, 2013:
• Annual wages exceeding $250,000 for Married taxpayers ($200,000 for Single) are subject to an additional 0.9% Medicare tax
• 3.8% tax will be imposed on net investment income for all taxpayers on Net Investment Income for Married taxpayers with modified adjusted gross income of $250,000 or greater (Single threshold is $200,000)
• Itemized medical expenses deduction increases to 10% of adjusted gross income as of January 1, 2013
• Over-the-counter drug purchases are excluded from coverage under FSA, HRA or HSA plans unless they are prescribed by a physician
• FSA, HRA and HSA plan contributions are limited to $2,500 annually per individual
Beginning January 1, 2014:
• Tax credits/subsidies are available to low income individuals who enroll and purchase their insurance through SHOP. The tax credit range is $600 for Married taxpayers ($300 for Single) for households under 200% of the FPL to a maximum of $2,500 for Married taxpayers ($1,250 for Single) between 300% and 400% of the FPL. At tax filing time, the credit will be re-calculated and repayment provisions will apply. Taxpayers below 100% of the FPL will not be subject to repayment provisions.
• All US Citizens without health insurance will be subject to a penalty. It applies to everyone (there are certain exceptions – ministry, incarceration are examples) including children. The penalty will be the greater of $95 per individual or 1% of annual income above a certain threshold. The penalty increases to $695 or 2.5% of taxable income beginning January 1, 2016.