Reform brings changes to tax laws

The recently enacted health law has some key provisions business owners and their workers need to understand. The major areas include tax credits, excise taxes and penalties.

But whether a business will be affected by them depends on a variety of factors, such as number of employees and type of insurance plan the company offers its employees.

Tax credits

The new law provides small employers with a tax credit for nonelective contributions to purchase health insurance for their employees. The credit can offset an employer’s regular tax or its alternative minimum tax liability. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least 50 percent of the total premium cost.

The business must have no more than 25 full-time employees, and the employees must have annual full-time equivalent wages that average no more than $50,000. The credit is initially available for any tax year beginning in 2010, 2011, 2012 or 2013. Self-employed individuals, including partners and sole proprietors, 2 percent shareholders of an S corporation and 5 percent owners of the employer are not treated as employees. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members.

Employer responsibility

An “applicable large employer” (generally more than 50 employees) 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 with respect to any calendar year if it employed an average of at least 50 full-time employees during the preceding calendar year. This provision is effective for months beginning after Dec. 31, 2013.

Excise tax

The law imposes an excise tax on insurers if the aggregate value of employer-sponsored health-insurance coverage for an employee exceeds a threshold amount. The tax is equal to 40 percent of the aggregate value that exceeds the threshold amount. For 2018, the threshold amount is $10,200 for individual coverage and $27,500 for family coverage, multiplied by the health cost adjustment percentage and increased by the age and gender adjusted excess premium amount.

The provision is effective for tax years beginning after Dec. 31, 2017.

Reporting requirements

The law also requires employers that provide minimum essential coverage to any individual during a calendar year to report certain health-insurance coverage information to both the covered individual and to the IRS.

The information required to be reported includes:

• The name, address and taxpayer identification number of the primary insured and each other individual obtaining coverage under the policy;

• The dates during which the individual was covered under the policy during the year;

• Whether the coverage is a qualified health plan offered through an exchange;

• The amount of any premium tax credit or cost-sharing reduction received by the individual;

• This requirement is effective for calendar years beginning after 2013.

Information reporting

The new law also requires employers to disclose on each employee’s annual Form W-2 the value of the employee’s health-insurance coverage sponsored by the employer, effective for tax years beginning after Dec. 31, 2010.

Cafeteria plans

The law also establishes simple cafeteria plan rules for small businesses.

Under the provision, an eligible small employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for specified qualified benefits offered under a cafeteria plan. This includes group term-life insurance, benefits under a self-insured medical expense-reimbursement plan and benefits under a dependent-care assistance program. The provision is effective for tax years beginning after Dec. 31, 2010.

John Kapral is a CPA with Ehrhardt, Keefe, Steiner & Hottman PC. He can be reached at 303-846-1275 or jkapral@eksh.com.

on Facebook on LinkedIn