In the spring of 2010, the Affordable Care Act was passed
To help Americans receive affordable health care treatments, now known as health reform.
This initiative contains the Affordable Care Act Tax Provisions that have been and will continue to be implemented within the next few years.
While there are a number of IRS tax provisions, below are 8 important Affordable Care Act Tax Provisions:
Effect of Sequestration on Small Business Health Care Tax Credit – Certain automatic tax cuts have been distributed as of March 1, 2013. Included is a tax reduction to the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers (Internal Revenue Code section 45R). This will give those who qualify a reduction of 8.7 percent. The sequestration rate will be useful until the end of the fiscal year (Sept. 30, 2013) unless Congressional action intervenes.
Medical Loss Ratio (MLR) – At the beginning in 2011, insurance companies were obligated to spend a quantified percentage of premium dollars on medical care and quality improvement. This was rated according to a medical loss ratio (MLR) standard.
Beginning in 2012, those insurance companies which did not meet MLR standards would need to deliver rebates to their customers.
Reporting Employer-Provided Health Coverage in Form W-2 – Employers are expected to report the cost of coverage within an employer-sponsored group health plan on an employee’s Form W-2, Wage, and Tax Statement. This reporting is informational only, showing employees the value of health care benefits. The coverage costs are placed in Box 12 with “Code DD.” A large number of employers qualified for tax-year 2012 transition relief. The reported amount does not affect tax liability.
Net Investment Income Tax – Starting in 2013, the new 3.8 percent Net Investment Income Tax went into effect. It applies to individuals, estates, and trusts that have certain investment income above certain threshold amounts. The IRS and the Treasury Department have issued proposed regulations on the Net Investment Income Tax. Submissions can be done electronically, by mail or hand-delivered to the IRS.
Additional Medicare Tax – A new 0.9 percent Additional Medicare Tax went into effect in 2013. It pertains to individual wages, Railroad Retirement Tax Act compensation, and self-employment income exceeding a threshold amount centered on the individual’s filing status.
The threshold amounts are as follows:
• $250,000 for married taxpayers who file jointly.
• $125,000 for married taxpayers who file separately.
• $200,000 for all other taxpayers.
It’s the employer’s responsibility to withhold Additional Medicare Tax withholdings from wages or compensation it pays exceeding $200,000/employee in a calendar year.
Small Business Health Care Tax Credit – This new health reform credit helps small businesses as well as small tax-exempt organizations when it comes to coverage affordability for employees, especially low- and moderate-income workers.
The credit – available to small employers that pay at least half the cost of single coverage for their employees – encourages small employers to either offer health insurance for the first time or maintain their coverage.
Health Insurance Premium Tax Credit – In 2014, individuals and families can take advantage of a new premium health reform tax credit. It will help them afford health insurance coverage when purchased through an Affordable Insurance Exchange.
These Exchanges will operate in every state as well as in the District of Columbia. The IRS tax credit is refundable and can be paid in advance to a taxpayer’s insurance company to lower the cost of premiums. Exchanges will offer a choice of health plans that meet requirements from the Department of Health and Human Services (HHS).
Health Coverage for Older Children – Affordable Care Act health coverage for an employee’s children now extends to those under 27 years of age. It is generally tax-free for the employee and applies to many workplaces and retiree health reform plans. These changes allow employees to make pre-tax contributions to pay for the expanded benefit.
To get the complete list of Affordable Care Act Tax Provisions, visit the IRS site.