Introduction
It has been over a year now since the Patient Protection and Affordable Healthcare Act (PPAHA) was signed into law. The expansive PPAHA passed in 2010 contains many provisions that mean benefits for the people of this country. In applying the new law, the government decided it was best to phase in the provisions year-by-year to the existing system of healthcare. This year, 2011, a number of provisions of the law become effective. The following listed benefits begin in effect this year:
Older Children
Adult children, whose parents are purchasing insurance for them, will be allowed to stay on their parents’ health insurance. Many companies have set up cafeteria benefits in order to dispose of the costs of the health care measures for families. This in effect will enable employees to shoulder the costs on their own healthcare, yet provide for health care coverage for their children that are age 26 and under. Most healthcare benefits provided under this provision of the law for workers and retirees comes tax free as it has in the past.
Changes to Flexible Spending Accounts
Effective also on January 1, 2011, the cost of over-the-counter drugs cannot be reimbursed by Flexible Spending Accounts, unless a prescription has been issued. Archer and Health Savings Account holders will be under a similar rule.
Small Business Tax Credit
This year, employers with 25 or less full-time employees, that average compensation of $50,000 or less, and pay at least half of the health insurance coverage for their employees are eligible for a tax credit. During tax years 2010, 2011, 2012, and 2013, employers will receive a 35% tax credit (in addition to a tax deduction for the premiums paid less the tax credit).
Indoor Tanning
The new law creates an excise tax on all indoor tanning services. The individual that receives the service must pay the tax to the operator; who will collect the tax and remit it to the federal government. The tax is 10%.
Reporting
Employer provided coverage is not taxable as it has been in the past. In 2011, W-2s will have a space provided to inform employees of the value of the healthcare benefits provided to them by their employers. The forms will include information based on the 2011 tax year
Adoption Credit
This year, the Act increases the maximum adoption credit to $13,170 per child up from $12,150. The credit is based on reasonable and necessary fees paid by the adopting parents. The law also has a refundable feature, meaning that if the amount paid exceeds the taxes the couple paid that particular year, a refund for the credit can still occur.
The Donut Hole Rebate
The Act provides for a one time $250 rebate in 2010 to assist with the Medicare Part D coverage gap. This rebate does not repeat itself in 2011.
Conclusion
The Patient Protection and Affordable Health Care Act is sweeping in its effect on healthcare. In order to keep an even keel on the health care system that was already in place, Congress and the President developed a slow phase in period. To keep up with the changes, you should plan accordingly.
By: Dr. Bart Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors