American Council for Food Safety & Quality

Health Care Reform Tax Impact

In late March 2010, health care reform was passed into law with both the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. These laws contain numerous tax provisions, and following is a brief summary of some of the key tax provisions:

Premium Assistance Credit (available for years ending after 12/31/13)
Refundable tax credits are available for eligible taxpayers to use to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through a state health benefit exchange (which each state is required to establish). After the credit, the individual will pay the difference between the premium tax credit amount and the total premium charged for the plan.

Small Business Tax Credit (for tax years beginning after 12/31/09)
Small businesses—defined as 25 or fewer employees and average annual wages of less than $40,000—would be eligible for a credit of up to 50% of non-elective contributions made on behalf of employees for insurance premiums. Tax-exempt organizations would get a 35% credit against payroll taxes. Employers with 10 or fewer employees and average wages of less than $20,000 would get 100% of the credit; it would be phased out, up to the 25-employee limit.

Employer Responsibility (for tax years beginning after 12/31/13)
A penalty will be required for any “applicable large employer” (average of at least 50 full-time employees during the preceding calendar year) that has both of the following:

1) Does not offer coverage for all its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%, and
2) A full-time employee purchased health insurance through a state exchange and was allowed a tax credit or received a cost-sharing reduction payment.

The penalty for each month this occurs is an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month multiplied by approximately $167.

Excise Tax on Uninsured Individuals (for tax years beginning after 12/31/13)
A penalty is created for U.S. citizens and legal residents (except individuals who are incarcerated, not legally present in the United States or maintain religious exemptions) who fail to maintain minimum amounts of health insurance coverage. Minimum essential coverage includes various government-sponsored programs, eligible employer-sponsored plans, plans in the individual market, grandfathered group health plans and other recognized coverage.

The penalty (phased in from 2014–2016) is the greater of: 2.5% of household income in excess of a filing threshold or $695 per uninsured adult in the household.

Excise Tax on High Cost Employer-Sponsored Coverage (for tax years beginning after 12/31/17)
A new tax was created on insurers that are equal to 40% of any “excess benefit” associated with employer-sponsored health coverage. “Excess benefit” means the amount by which the aggregate cost of the coverage exceeds an annual specified limitation ($10,200 for self-only coverage or $27,500 for all other coverage). Retirees and employees in certain high-risk professions or who repair or install electrical or telecommunications lines have a higher limit. After 2018, the annual limitation is adjusted for inflation.

Information Reporting (for tax years beginning after Dec. 31, 2010)
Employers are required to disclose on each employee’s annual Form W-2 the value of the employee’s health insurance coverage sponsored by the employer

As you can tell, there are many changes that are being made by the new laws. To learn more about these tax changes and any of the other new tax changes, please see your tax professional.

Staff Contact: Anthony Tassone