Guest author and Looper Reed tax attorney Jennifer Gurevitz offers some thoughts on the recent Supreme Court decision upholding Obamacare.
Now that the Supreme Court has confirmed that the Patient Protection and Affordable Care Act is constitutional and has upheld the individual mandate providing that all Americans have minimum essential health insurance coverage or pay a penalty, it is important to understand the implications this law has on businesses and their employees. Some key implications are as follows:
Employer Responsibility – Providing Health Insurance or Paying a Fine.
- Employers with Less than 50 Full-Time or Full-Time Equivalent Employees. Employers with less than 50 full-time employees (those who work 30+ hours per week) or full-time equivalent employees (determined by dividing the total number of hours worked in a month by part-time employees by 120) are not responsible for providing health care coverage for their employees and are not liable for a fine for failing to do so.
- Small Business Tax Credit. Small businesses (defined as businesses with 25 or fewer employees and average annual wages of $50,000 or less) are eligible for a tax credit of up to 50% of nonelective contributions the business makes on behalf of their employees for insurance premiums.
- Employers with 50 or more Full-Time or Full-Time Equivalent Employees. Beginning in 2014, employers with 50 or more full-time or full-time equivalent employees will have the option of providing health insurance for all of their employees or paying a fine.
- Fine for Employers who Offer Health Insurance. Employers must pay a non-deductible penalty of $3,000 per year for each full-time employee who obtains health insurance through a health care exchange and receives the premium tax credit if the employer does not offer minimum essential coverage to its full-time employees and their dependents. An employer does not offer minimum essential coverage if the employer medical plan contributions equal less than 60% of allowed costs, or if an employee pays more than 9.5% of his or her household income for health coverage. This penalty is limited to an amount equal to $2,000 multiplied by the number of full-time employees of the employer (less the first 30 employees).
- Fine for Employers who do not Offer Health Insurance. Employers who don’t offer health coverage will be required to pay a non-deductible penalty of $2,000 per employee. An employer’s first 30 employees who would otherwise qualify will not be included in the assessment.
- Employers with Over 200 Employees. In addition to the rules provided above for employers with 50 or more full-time or full-time equivalent employees, beginning sometime in 2014 after the IRS issues regulations, employers with over 200 employees that offer health coverage must automatically enroll new full-time employees in a coverage option and must also automatically continue existing elections for current full-time employees from year to year.
Health Insurance Exchanges. Beginning in 2014, health insurance exchanges will be established in each state or through the federal government for states that have opted not to create their own exchanges or are unable to operate an exchange by January 2014. Individuals and employers with less than 100 employees (some states may limit to 50 employees through 2016) will be able to shop for insurance through the exchanges. The exchanges have the option of including employers with more than 100 employees beginning in 2017. The use of the exchanges will allow employers to choose the level of coverage they will provide and to offer their employees choices among qualified health plans within that level of coverage. This will let employers offer plans from multiple insurers but receive a single bill and write a single check. Employers purchasing coverage through an exchange may be eligible for a tax credit of up to 50 percent of their premium payments if they have 25 or fewer employees, pay employees an average annual wage of less than $50,000, offer all full-time employees coverage and pay at least 50 percent of the premium.
Reporting Requirements. Beginning in 2013 (for 2012 Forms W-2), employers that provide health insurance to their employees, whether the employer or the employee pays the premiums, must disclose the value of health benefits on each employee’s W-2 . Employers filing fewer than 250 Forms W-2 for the previous calendar year are currently exempt from this new reporting requirement until the IRS issues regulations stating otherwise.
Increased Tax for Some Employees and Investors. Beginning in 2013, individual taxpayers with incomes in excess of $200,000 ($250,000 for couples filing married filing jointly) will pay an additional 0.9 percent Medicare tax on the excess. In addition, they’ll pay a new, 3.8 percent Medicare tax on unearned income, such as interest, dividends, rents, royalties, and certain tax gains.
Health Insurance Premium Tax Credit. Refundable tax credits are available to eligible taxpayers to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through a health benefit exchange. Credits are available for people with incomes above Medicaid eligibility and below 400 percent of the poverty level ($92,200 for a family of four in 2012) who are not eligible for or offered minimum essential coverage. The credits apply to both premiums and cost-sharing.
Cap on Flexible Spending Accounts. Beginning in 2013, Flexible Spending Account Contributions will be capped at $2,500 and future caps will be tied to increases in the Consumer Price Index.
HSA Withdrawal Penalty. The tax penalty for an unqualified withdrawal from an HSA account has been increased effective January 1, 2011, from the current level of 10% to 20%.