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What Does Obamacare Mean for You or Your Business

Whether you are an employer or an employee, the Patient Protection and Affordable Care Act (PPACA) has provisions that will affect you. While some of the law’s provisions have already taken effect, many of the provisions will begin taking effect in 2013, 2014, and later years. Below is a summary of some of the more significant individual and business provisions that may be of interest to you.

Penalty for Not Maintaining Minimum Essential Coverage

The crux of PPACA is the requirement for almost all individuals to maintain minimum essential healthcare coverage (i.e., the individual mandate). Beginning in January 2014, non-exempt U.S. citizens and legal residents are required to maintain such coverage or be subject to a penalty. Once the penalty is fully phased in, individuals who fail to maintain minimum essential coverage are subject to a penalty equal to the greater of 2.5 percent of household income in excess of the taxpayer’s household income for the tax year over the threshold amount of income required for income tax return filing for that taxpayer or $695 per uninsured adult in the household.

The per-adult annual penalty is phased in as follows: $95 for 2014; $325 for 2015; and $695 in 2016. The percentage of income is phased in as follows: 1 percent for 2014; 2 percent in 2015; and 2.5 percent beginning after 2015. If you file a joint return, you and your spouse are jointly liable for any penalty payment.

Premium Assistance Tax Credit

Effective for tax years ending after December 31, 2013, the law creates a refundable tax credit, called the premium assistance credit, for eligible individuals and families who purchase health insurance through an insurance exchange. The premium assistance credit is generally available for individuals (single or joint filers) with household incomes between 100 and 400 percent of the federal poverty level for the family size involved.

Additional Hospital Insurance Tax

Beginning in 2013, the employee portion of the hospital insurance portion of FICA taxes is increased by an additional tax of 0.9 percent on wages received in excess of the threshold amount. This additional tax is on the combined wages of the employee and the employee’s spouse, in the case of a joint return. The threshold amount is $250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case.

Unearned Income Medicare Contribution Tax

Beginning in 2013, in the case of an individual, estate, or trust, an additional tax is imposed on income over a certain level. This tax is referred to as the “unearned income Medicare contribution tax.” Others have referred to it as a tax on investment income, although it can apply to individuals, estates, and trusts that do not have investment income. For an individual, the tax is 3.8 percent of the lesser of net investment income or the excess of modified adjusted gross income over a threshold amount. The threshold amount is $250,000 in the case of taxpayers filing a joint return or a surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case.

In the case of an estate or trust, the tax is 3.8 percent of the lesser of undistributed net investment income or the excess of adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins.

The new tax does not apply to items that are excludible from gross income under the tax rules, such as interest on tax-exempt bonds, veterans’ benefits, and any gain excludible from income when you sell a principal residence.

Increase in Medical Expense Deduction Threshold

For 2013 and later years, the floor for taking a deduction for medical expenses is increased from 7.5 percent of adjusted gross income (AGI) to 10 percent of AGI. However, for any tax year ending before January 1, 2017, the floor will be 7.5 percent if the taxpayer or the taxpayer’s spouse has reached age 65 before the end of that year.

FSA Limitation

Beginning in 2013, for a health flexible spending arrangement (FSA) to be a qualified benefit under a cafeteria plan, the maximum amount available for reimbursement of incurred medical expenses of an employee, the employee’s dependents, and any other eligible beneficiaries with respect to the employee, under the health FSA for a plan year (or other 12-month coverage period) must not exceed $2,500.

Shared Responsibility for Employers

Under PPACA, certain employers have a responsibility to supply their workers with health care or be subject to a penalty. An applicable large employer that 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 percent, is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.

An employer is an applicable large employer for any calendar year if it employed an average of at least 50 full-time employees during the preceding calendar year. An employer is not treated as employing more than 50 full-time employees if the employer’s workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year and the employees that cause the employer’s workforce to exceed 50 full-time employees are seasonal workers. A seasonal worker is a worker who performs labor or services on a seasonal basis, including retail workers employed exclusively during the holiday season and workers whose employment is, ordinarily, the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year.

Small Business Tax Credit

PPACA provides a tax credit for a qualified small employer for nonelective contributions to purchase health insurance for its employees. Although the credit took effect in 2011, the amount of the credit increases from 35 percent (25 percent for tax-exempt organizations) of eligible premium payments to 50 percent (35 percent for tax-exempt organizations) in 2014.

Excise Tax on High-Cost Employer-Sponsored Health Coverage

Beginning after December 31, 2017, PPACA imposes an excise tax on certain health insurance providers for any excess benefit provided by an employer to an employee with respect to employer-sponsored health coverage. The excise tax is imposed pro rata on the issuers of the insurance. In the case of a self-insured group health plan, a Health FSA or an HRA, the excise tax is paid by the entity that administers benefits under the plan or arrangement. Where the employer acts as plan administrator to a self-insured group health plan, a Health FSA or an HRA, the excise tax is paid by the employer. Where an employer contributes to an HSA or an Archer MSA, the employer is responsible for payment of the excise tax, as the insurer.

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January 8, 2016

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