As a continuation of our summaries sent on March 22nd and March 24th related to the recently-passed healthcare reform bill, PYA has outlined below additional detail related to certain taxation implications contained in the legislation.
Upcoming Changes for Businesses due to Healthcare Reform
On March 23rd, President Obama signed into law the Patient Protection and Affordable Care Act (“Act”). Though this Act has been signed into law, a second piece of legislation, the Reconciliation Agreement (“Agreement”), continues to be debated at this time. If signed, the Agreement could alter some aspects of the Act as detailed below.
In summary, the Act imposes penalties on businesses that do not provide health coverage, adds credits for small businesses that do provide coverage, and changes some reporting and compliance items.
Penalties
After December 31, 2013, employers that either do not provide health coverage or offer unaffordable coverage and have at least 50 full-time employees could be subject to a penalty of $750 per full-time employee, as an inducement for employers to provide health coverage. This penalty will only apply if an employee becomes entitled to a tax credit (as described in the March 24th summary), meaning they otherwise have coverage on the individual market or through a health insurance exchange.
If an employer does offer health coverage and an employee obtains a tax credit, the penalty is increased to $3,000 for each employee that obtained the credit, but in no case more than the company would have paid if it did not offer insurance coverage.
Possible changes from the Reconciliation Agreement, if passed, would exclude the first 30 employees from the penalty calculation, but increase the penalty on employers that do not offer insurance coverage to $2,000 per full-time employee.
Small Business Health Coverage
Small businesses that make contributions towards employee health benefits will be eligible for a credit that offsets a portion of the cost of coverage. To qualify, the business must have no more than 25 full-time employees, provide qualifying medical coverage and pay average annual wages of less than $50,000 per employee. For years 2010 through 2013, the credit is equal to 35% of the lesser of the employer’s non-elective contributions for premiums paid for coverage or the average premium for the small group market in the employer state. This credit is effective for amounts paid after December 31, 2009 with the credit increasing to 50% in 2014.
Reporting and Compliance Changes
The Act adds a requirement for employers related to Form W-2 reporting. The value of employer-sponsored health benefits must be disclosed on Forms W-2 for years beginning after December 31, 2010.
Also, the Act extends the filing of Forms 1099 to include services provided by corporations, where before corporations have been exempt from reporting, and to include amounts paid for property in addition to services. These changes are effective for amounts paid after December 31, 2011.
Please note that the Reconciliation Agreement items described above have not been signed into law by the President at this time and are subject to change. If you would like more information on this new legislation, please contact Doug Yoakley or Heather Martin at (800) 270-9629.
