- A new type of employee benefit plan, the Simple Cafeteria Plan, will be available beginning in 2011. The rules will ease traditional restrictions on participation by company owners so that more small business can provide tax-free benefits to their employees. A small business is defined as one with 100 employees or less. A "cafeteria plan" is established by an employer to offer a "menu" of certain nontaxable benefits from which participating employees may select. Examples of benefits include medical spending accounts and dependent care assistance.
- Over-the-counter medicines will no longer be eligible for tax-free reimbursement from Flexible Spending Accounts, Health Reimbursement Accounts, Archer Medical Savings Accounts, and Health Savings Accounts beginning in 2011. The penalty on nonqualified distributions from Health Savings Accounts will increase from 10% to 20% and on Archer Medical Savings Accounts from 15% to 20%.
- Employers are required to report the total cost of providing employer-sponsored health insurance coverage to each employee on his or her Form W-2, starting with the 2011 plan year. This is for information reporting only and does not make such benefits taxable. UPDATE: On October 12, 2010, the IRS released Notice 2010-69 wherein this W-2 reporting will not be mandatory for W-2s issued for 2011 in order to provide employers with additional time to make the changes to their systems to comply with the reporting requirement. UPDATE #2: The IRS subsequently released Notice 2011-28 that further delays the requirement of W-2 disclosure until W-2s are issued for 2012 compensation for small employers filing less than 250 W-2s.
- Beginning in 2012, all businesses must report payments of $600 or more on Forms 1099 for all persons and entities providing services or property to the business. Currently, Form 1099 is not required to be prepared for payments to corporations or for the receipt of property. Businesses that do not complete the required Forms 1099 are subject to penalties. UPDATE: New legislation enacted on April 14, 2011 repeals the expansion of Form 1099 reporting.
Thursday, April 29, 2010
Health Care Reform, Part 2: 2011 & 2012 Tax Changes
The most significant tax changes occurring in 2011 pertain to the sunset of the 2001 tax cuts enacted by Pres. Bush. Those changes will be discussed in a later blog post as this article focuses on tax changes enacted by the health care reform act.
Friday, April 23, 2010
Health Care Reform Act, Part I: 2010 Tax Changes
Now that the April 15th tax day has come and gone, it is time to look ahead at some of the tax law changes that have been enacted as part of the Health Care Reform Act. Since there are so many changes, we'll examine them over a series of postings.
After a long and contentious process, Pres. Obama and the Democrats in Congress forced through a series of laws that resulted in a reform of the health care system. The final piece, the Health Care and Education Reconciliation Act of 2010 was signed on March 30, 2010. An estimated $437 billion in new taxes, fees, and penalties were enacted to partially pay for the nearly $1 trillion in costs, as estimated over the next 10 years. The balance is supposed to be paid for by Medicare cost savings and other assumptions. Several tax changes take effect in 2010.
First, a small employer tax credit is available to help offset the cost of employer-provided health insurance where the employer pays at least half of the premium cost. A small employer is defined as one with no more than 25 employees whose average annual wages do not exceed $50,000. In 2010 through 2013 a tax credit of up to 35% of the cost of the premium paid by the small employer is available. After 2013, a 50% credit is available for two years if the insurance is purchased through an "insurance exchange." The full tax credit is only available to small employers with 10 or fewer employees with average annual wages not exceeding $25,000. The tax credit phases out as the number of employees or the average annual wages increases to 25 and $50,0000 respectively. Very detailed rules apply to qualify for and compute the credit.
Second, the adoption tax credit for qualified adoption expenses is increased to $13,170 and becomes a refundable credit for 2010 and 2011. The credit phases out for those with modified adjusted gross income from $182,520 to $222,520.
Third, a 10% excise tax is imposed on individuals paying for indoor tanning services provided on or after July 1, 2010.
Fourth, the so-called "economic substance doctrine" has been enacted into law effective for transactions entered into on or after March 30, 2010. A transaction is treated as having economic substance only if it changes the taxpayer's economic position in a meaningful way (apart from federal tax effects) and the taxpayer has a substantial, non-tax purpose for entering into the transaction. Failure to meet this standard will result in the loss of expected tax benefits and the imposition of a 20% or 40% penalty. There are no exceptions to this penalty for disclosure or for reasonable cause. This provision is not intended to affect normal business transactions or prevent the realization of tax benefits consistent with Congressional purpose.
After a long and contentious process, Pres. Obama and the Democrats in Congress forced through a series of laws that resulted in a reform of the health care system. The final piece, the Health Care and Education Reconciliation Act of 2010 was signed on March 30, 2010. An estimated $437 billion in new taxes, fees, and penalties were enacted to partially pay for the nearly $1 trillion in costs, as estimated over the next 10 years. The balance is supposed to be paid for by Medicare cost savings and other assumptions. Several tax changes take effect in 2010.
First, a small employer tax credit is available to help offset the cost of employer-provided health insurance where the employer pays at least half of the premium cost. A small employer is defined as one with no more than 25 employees whose average annual wages do not exceed $50,000. In 2010 through 2013 a tax credit of up to 35% of the cost of the premium paid by the small employer is available. After 2013, a 50% credit is available for two years if the insurance is purchased through an "insurance exchange." The full tax credit is only available to small employers with 10 or fewer employees with average annual wages not exceeding $25,000. The tax credit phases out as the number of employees or the average annual wages increases to 25 and $50,0000 respectively. Very detailed rules apply to qualify for and compute the credit.
Second, the adoption tax credit for qualified adoption expenses is increased to $13,170 and becomes a refundable credit for 2010 and 2011. The credit phases out for those with modified adjusted gross income from $182,520 to $222,520.
Third, a 10% excise tax is imposed on individuals paying for indoor tanning services provided on or after July 1, 2010.
Fourth, the so-called "economic substance doctrine" has been enacted into law effective for transactions entered into on or after March 30, 2010. A transaction is treated as having economic substance only if it changes the taxpayer's economic position in a meaningful way (apart from federal tax effects) and the taxpayer has a substantial, non-tax purpose for entering into the transaction. Failure to meet this standard will result in the loss of expected tax benefits and the imposition of a 20% or 40% penalty. There are no exceptions to this penalty for disclosure or for reasonable cause. This provision is not intended to affect normal business transactions or prevent the realization of tax benefits consistent with Congressional purpose.
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