Healthcare Reform Bill

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Think the health care bill is only about health care? Allyson Baumeister, officer and partner at CPA firm Sanford, Baumeister & Frazier, outlines the implications and (frightening) impacts of the bill on individuals and small businesses. Well done, Allyson!


Health care reform affects business, personal taxes
Allyson Baumeister
New health care legislation will change the way Americans live, requiring insurance coverage of the 32 million people currently uninsured. The changes not only concern Americans’ health care, but also areas not usually associated with health care. The legislation fundamentally changes the tax landscape for individuals and employers.
The Patient Protection and Affordable Care Act (H.R. 3590), signed into law in March 2010, outlines a plan for increased governmental involvement in health care in the United States and near-universal insurance coverage for all American taxpayers.  The Congressional Budget Office estimates this expansion will cost $950 billion during a 10-year period. To offset these increased costs, Congress drafted a second bill, the Health Care and Education Affordability Reconciliation Act (H.R. 4872), to amend the Patient Protection Act and target new revenue sources. Provisions included therein should raise $438 billion in taxes and fees paid by insurers, businesses and individuals.

The Patient Protection and House Reconciliation Acts target a multitude of sources for additional revenue. Following is a list of the most significant targets, each accompanied by a brief description of changing tax rates or fees. Keep in mind that this is a cursory list extracted and compiled from a staggeringly complex bill.

• Individual responsibility: Everyone must maintain health insurance starting in 2014. If you go without insurance, you will be subject to a penalty tax. The tax for most individuals older than 18 will be $95 (or 1 percent of income, whichever is greater) in 2014; $325 (or 2 percent of income) in 2015; and $695 (or 2.5 percent) in 2016.

• Health insurance and employer responsibility: Large companies (with more than 50 employees) will be required to provide health insurance benefits to employees.  Companies that do not provide health insurance will be taxed $2,000 per year per employee.

Small companies (usually with no more than 25 employees and average annual wages of less than $50,000) will not be required to provide health insurance. They will, however, be encouraged to provide coverage through an available tax credit for up to 35 percent of their contribution to the employee’s insurance premium. Additionally, qualified small businesses may be able to purchase insurance through state-based Web portals known as Small Business Health Options Programs (SHOP) which allow small businesses to pool together, sharing financial risk.

• High-cost plan excise tax:  Beginning in 2018, as part of an effort to limit so-called “Cadillac plans,” high-cost health insurance plans will be subject to an excise tax. The tax will apply to the insurance company providing the plan, not to the individual. Individual plans that cost more than $10,200 and family plans that cost more than $27,500 will be taxed at 40 percent of incremental costs.

• Investment income Medicare contribution: Medicare tax will be levied on investment income for higher-income taxpayers starting Jan. 1, 2013. For families making more than $250,000 and individuals making more than $200,000, investment income from interest, dividends, capital gains, rental income and royalties will be taxed at 3.8 percent. Income in tax-deferred retirement accounts will be exempt from the tax.

• Medicare tax increase:  In addition to the expansion of Medicare tax to investment income, the Medicare tax rate on wages of high income earners will increase from 2.9 percent to 3.8 percent starting in 2013. This additional tax will be levied on taxable earnings in excess of $200,000 for single taxpayers and $250,000 for joint filers.

• Extended health insurance coverage for dependents: Effective March 30, 2010, health plans must extend coverage to a child of a covered employee or self-employed taxpayer who has not attained age 27 as of the end of the tax year. This dramatically extends the age of dependents for health insurance coverage.

• Excise tax on medical device manufacturers:  Starting Jan. 1, 2013, sales of medical devices will be subject to a 2.9 percent national excise tax. The tax will not apply to medical devices judged by the IRS as routine customer purchases, like eyeglasses, contact lenses and hearing aids.

• Increased threshold for itemizing medical expenses:  Starting in 2013, for individuals incurring significant medical costs, the adjusted gross income threshold for claiming an itemized deduction will increase from 7.5 percent to 10 percent, effectively decreasing an individual’s ability to deduct medical expenses. Individuals age 65 and older (and their spouses) are exempt from the increase from 2012 until 2017.

• Excise tax on indoor tanning services: Beginning July 1, 2010, indoor tanning services are subject to a 10 percent excise tax. (This tax replaced a proposed tax on plastic surgery.)

• Acute and chronic disease research tax credits: Businesses that do not employ more than 250 employees are eligible for a credit equal to 50 percent of investments made in 2009 and 2010 for new therapies to prevent, diagnose and treat acute and chronic diseases.  This is a more lucrative credit than the traditional Research & Development (R&D) credit.

• Adoption credits: The Act raises the dollar limitation for the adoption credit from $10,000 to $13,170 and extends the refundable credit through 2011. It also offers incentives for adopting children with special needs.

This list only hints at the complexity of the Patient Protection and House Reconciliation Acts. Many of these taxes will be levied via a stepped fee scale, instituted gradually through the next few years and periodically increasing during the next decade. Think about your current situation – individual or family. Are you a small business owner or employee at a large corporation? Then, attempt to gain some familiarity with how your tax burden will change.

Certified Public Accountant Allyson B. Baumeister is an officer and partner at Sanford, Baumeister, & Frazier PLLC. She can be reached at 817-877-5000.

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