I recently attended a great seminar about the upcoming tax changes due to the Health Care Legislation. Here’s a quick summary:
Starting in 2010:
-Adoption Credit: The tax (& assistance) credit increased by $1,000, made refundable and extended through 2011.
-Insurance coverage for children under age 27. The child does not have to be a dependent.
– Tax on tanning salons: Effective July 1, 2010, an excise tax of 10% is imposed on the cost of services. It’s imposed on the customer, but collected from the salon owner.
– Small Employer Health Insurance Credit: The employer must pay at least 50% of the employees’ health insurance premiums. Employers cannot have more than 25 Full-Time-Equivalents, and the average wages have to be less than $50,000. An employee does not include the sole proprietor, any 2% shareholder of an S corp, any 5% owner of a C Corp or Partnerhip LLC, OR anyone related to the above 3 exceptions. The calculation is a complicated one as well.
Starting in 2011:
– Limitations on Health and Medical Savings Accounts, as well as a doubling of the penalty for a nonqualifying distribution to 20%. In addition, non-prescription drugs (e.g., Advil) can longer by reimbursed by the HSA or MSA.
– Simple Cafeteria Plan Changes: “Eligible” Employers may skip the nondiscrimination requirements if they adhere to certain rules. An “eligible” employer is one that employed 100 or fewer employees on business days during either of the 2 preceding years.
– W-2 Reporting of the value of the employees’ health insurance benefits provided by the employer. The value of the employer-sponsored health insurance is not taxable income, but it must be disclosed.
Starting in 2012:
– 1099 Reporting Increase: If you paid any vendor (both individual AND corporation) at least $600 for either goods or services, you must issue a 1099. That includes products, rents, etc.!
– Adoption Credit and Adoption Assistance Programs end.
Starting in 2013:
– Increase in Medicare Tax on Earned Income: Additional .9% tax on earned income over $250K (married filing jointly) or $200K (single). NOTE: the marriage penalty is back!
– Additional Medicare Tax of 3.8% on Unearned Income (on individuals, estates and trusts) in excess of $250K (MFJ) or $200K (MFS or single). This is NOT indexed for inflation. Income includes interest, dividends, royalties, rents, K-1s, etc. It will also apply to gains from sale of residences. TAX PLANNING POINT: Consider electing out of Installment Sale treatment for the gain and take the entire hit before the additional tax applies. Also, if you want to convert your IRA to a ROTH, consider doing it before 2013.
– Increase in Adjusted Gross Income limit for Medical Expense Deductions: The AGI threshold limit is currently at 7.5%. Beginning 2013, the limit increases to 10%, meaning that your medical expense deductions will decrease.
Starting in 2014:
Requirement To Carry Health Insurance: You will be required to maintain minimum health insurance coverage beginning in 2014, or be assessed a penalty. The penalty is calculated on a monthly basis and equal to a greater of a monthly portion of a flat amount for each family member up to a max of 3 ($95 in 2014) or a % of household income (1% in 2014).
Starting in 2018:
– “Cadillac” health insurance tax: A 40% excise tax will be imposed on these plans to the extent that the value of the employer-sponsored health coverage exceeds a threshold amount.