Small Business Healthcare Tax Credit
A temporary tax credit is available for certain small businesses that provide qualified health insurance. The maximum credit equal to 35 percent of the employer contribution is available from 2010 to 2013. Beginning in 2014, a 50 percent credit is available for an additional two years, if the small business purchases health insurance through a Small Business Health Options Program (SHOP) health insurance exchange. The business must pass a series of tests to determine if they qualify and how much credit they may receive. Businesses with 10 or fewer employees paying $25,000 or less in average wages are potentially eligible for the full credit. Businesses with between 11 to 24 employees and average annual wages of less than $50,000 may be eligible for some credit. Businesses with more than 25 employees and/or $50,000 in average annual wages are not eligible for any credit.
The rules and calculations to determine eligibility for the credit are complicated. There are a number of tools to help you determine if you receive a credit and how much it is worth. Also, please be sure to consult an accountant or tax professional to determine your eligibility.
Tanning Salon Tax
On July 1, 2010, a 10% tax was imposed on certain indoor tanning services. Specifically, the tax applies to the use of tanning devices utilizing ultraviolet lamps. Certain businesses, such as qualified physical fitness facilities, were exempt. The tax was collected from the purchases of tanning services and remitted quarterly to the IRS on a Form 720.
For IRS guidance and copies of Form 720 visit http://www.irs.gov/uac/Form-720,-Quarterly-Federal-Excise-Tax-Return
Brand-Name Prescription Drug Tax
In 2011, the manufacturers and importers of brand-name prescription drugs began paying an annual tax based on their share of the total brand-name drug market.
Flexible Spending Account (FSA) Limitations Under Cafeteria Plans
FSAs are a qualified benefit that may be offered to employees under a cafeteria plan. Beginning in 2013, for an FSA to qualify as a benefit under a cafeteria plan, the maximum amount available for reimbursement cannot exceed $2,500. A cafeteria plan that includes an FSA that exceeds the maximum limitation will fail to qualify as a cafeteria plan.
Increased Penalty for Non-Qualified Distributions from Health Savings Accounts (HSAs)
Distributions from an HSA can only be used for qualified medical expenses and a nonqualified distribution is subject to a penalty. The penalty for making nonqualified distributions from an HSA increased from 10 percent to 20 percent in 2011.
Cafeteria Plan Safe Harbor Rules
In 2011, the application of nondiscrimination rules did not apply to cafeteria plans established by certain small businesses. Cafeteria plans were subject to nondiscrimination rules to ensure that benefits were not disproportionately allocated to highly compensated employees. Many smaller businesses struggled to meet the nondiscrimination tests because of the employee size calculation in the test.
An eligible small employer is provided a safe harbor from the nondiscrimination rules if the cafeteria plan satisfies minimum eligibility and participation requirements and minimum contribution requirements. An eligible small employer is an employer who employed an average of 100 or fewer employees during either of the two preceding years. A cafeteria plan satisfies the eligibility requirements if all employees are eligible to participate and able to elect any benefit available under the cafeteria plan. The minimum contribution requirement is met if the employer provides a minimum contribution for each employee who is not highly compensated, equal to, not less than, two percent of each eligible employee’s compensation for the plan year.
Expanded 1099 Information Reporting
In 2012, businesses would have been required to provide Form 1099-MISC for additional business-to-business transactions. In 2011, this provision of the healthcare law was repealed. However, previous 1099 reporting requirements still exist.
Medical Device Tax
Beginning in 2013, manufacturers and importers of certain medical devices will face an annual 2.3 percent excise tax.
For final regulations from the IRS, please visit medical device tax regulation.
Limitation of Deduction Medical Expenses
Currently, an individual may deduct the cost of medical expenses exceeding 7.5 percent of the taxpayer’s adjusted gross income (AGI) on their individual tax return. Beginning in 2013, the medical expense threshold is increased to costs exceeding 10 percent of the taxpayer’s AGI.
Limited Use of Certain Medical Accounts for the Purchase of Over-the-Counter Medicine
Beginning in 2011, the cost of over-the-counter medicine could not be reimbursed with funds from an FSA, HRA, HSA or Archer MSA, unless the over-the-counter medicine was prescribed by a physician, except for insulin.
Medicare Payroll Tax Increase
Beginning in 2013, the employee portion of the Medicare payroll tax (specifically the Hospital Insurance portion of the tax) will be increased by 0.9 percent from the current 1.45 percent. The increase only applies to wages over $250,000 for joint return filers, $200,000 for individual filers and $125,000 for married individuals filing separate returns. The tax increase also applies to the Medicare portion of SECA taxes for self-employment income.
New Medicare Investment Income Tax
Beginning in 2013, a new 3.8 percent Medicare payroll tax will be assessed on certain investment income. The tax is assessed on the lesser of net investment income or the modified adjusted gross income (MAGI) over the threshold amount of $250,000 for a joint filer, $200,000 for an individual filer, or $125,000 for a married individual filing a separate return. Net investment income includes income from interest, dividends, annuities, royalties and rents. Income in these categories derived from a trade or business is not subject to the tax, unless ownership in the trade or business is considered passive.
Small Business Health Insurance Tax
In 2014, a new tax on fully insured health insurance products will begin. The small business health insurance tax will cost small businesses and their employees $102 billion in the first 10 years, and over $200 billion in the following 10 years. Although the tax is levied on health insurance providers, it will be passed on to small businesses and the self-employed in the fully insured market in the form of increased premiums. The tax will raise $8 billion in 2014, rise to $14.3 billion in 2018, and the amount will continue to increase by the rate of premium growth for subsequent years.
Check out additional information about the impact this fee will have on small business health insurance plans.
Tax on Cadillac Health Insurance Plans
Beginning in 2018, insurers providing employer-sponsored health insurance coverage that exceeds a threshold amount will be charged a 40 percent excise tax. The threshold amounts are $10,200 for individual coverage and $27,500 for family coverage.