Small Business Health Care Tax Credit
A temporary tax credit is available for some small businesses that provide qualified health insurance. A maximum credit equal to 35% of the employer contribution is available from 2010 to 2013. Beginning in 2014, a 50% credit is available for an additional two years, if the small business purchases health insurance through a 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 then $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.
Beginning July 1, 2010, a 10% tax is 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, are exempted. The tax is collected from the purchases of tanning services and remitted quarterly to the IRS on a Form 720.
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Brand-Name Drug Tax
Beginning in 2011, the manufacturers and importers of brand-name prescription drugs will face an annual tax based on their share of the total brand-name drug market.
FSA Limitations Under Cafeteria Plans
Health FSAs are a qualified benefit that may be offered to employees under a cafeteria plan. Beginning in 2013, for a Health 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 a Health FSA which exceeds the maximum limitation will fail to qualify as a cafeteria plan.
Increased HSA Penalty for Non-Qualified Distributions
Distributions from an HSA can only be used for qualified medical expenses and a nonqualified distribution amount is subject to a penalty. The penalty for making nonqualified distributions from an HSA will be increased from 10% to 20% in 2011.
Cafeteria Plan Safe Harbor Rules
Beginning in 2011, application of nondiscrimination rules will not apply to cafeteria plans established by certain small businesses. Cafeteria plans are currently subject to nondiscrimination rules to ensure that benefits are not disproportionately allocated to highly-compensated employees. Many smaller businesses struggle 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
Beginning in 2012, businesses will be required to provide Form 1099-MISC for additional business-to-business transactions. Currently, a 1099 is issued to unincorporated (sole proprietor, partnership) businesses that provide services valued at $600 or more. The expanded information reporting requirement includes services from incorporated businesses, as well as purchases of property of $600 or more from both incorporated and unincorporated businesses. In addition, the reporting business must include on the 1099 the service-providing business’s taxpayer identification number. If the TIN is inaccurate or no TIN is provided, the reporting business is required to withhold 28% of the total contract. The IRS is currently working on additional guidance, including an exemption for certain credit card transactions, and will update the form 1099-MISC.
To request a TIN or for additional information about TINs
Medical Device Tax
Beginning in 2013, manufacturers and importers of certain medical devices will face a 2.3% excise tax.
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 on their individual tax return. Beginning in 2013, the deduction is limited to 10% of the taxpayer’s AGI.
Denial of the Use of Certain Medical Accounts for the Purchase of Over-the-Counter Drugs
Beginning in 2011, the cost of over-the-counter drugs may not be reimbursed with funds from a Health FSA, HRA, FSA, HSA or Archer MSA, unless the medicine is 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) is increased by .9% from the current 1.45%. 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.
Medicare Investment Income Tax
Beginning in 2013, a new 3.8% Medicare tax will be accessed on certain investment income. The tax is accessed on the lesser of net investment income or the modified adjusted gross income 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
Beginning in 2013, an annual fee will be assessed on health insurance providers based on their market share of health insurance policies in the small group and individual markets. The fee will not be assessed based on their share of self-insured plans. The fee will raise $8 billion in 2014, rising to $14.3 billion by 2018.
Tax on Cadillac Health Insurance Plans
Beginning in 2018, insurers providing employer-sponsored health insurance coverage that exceeds a threshold amount will be charged an excise tax. The threshold amounts are $10,200 for individual coverage and $27,500 for family coverage.