HEALTH CARE REFORM
 

Tax Credit Helps Small Employers Provide Health Insurance Coverage

Many small businesses that provide health insurance coverage to their employees may now qualify for a special tax credit.  Included in the Patient Protection and Affordable Care Act, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low to moderate-income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. The maximum credit goes to smaller employers — those with 10 or fewer FTEs — paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011.

Reporting Employee Cost Information on W-2's is Optional for 2011

As part of the Patient Protection and Affordable Care Act (PPACA), employers are required to report the aggregate cost of employer-sponsored coverage on each employee's W-2. Initially, employers were to begin reporting this information with the 2011 W-2's. However, in an attempt to provide system adjustment time, the IRS has issued Notice 2010-69, which states that employers now have the option to report for 2011; it is no longer a requirement.

In addition, a draft form W-2 has also been issued (http://www.irs.gov/pub/irs-utl/draft_w-2.pdf), which contains cost of coverage codes applicable to employer-sponsored group health plans. Additional guidance about this new reporting requirement is expected from the IRS later this year. The IRS has stressed that reporting is for informational purposes only, to provide employees with increased healthcare cost transparency. Amounts reported are not taxable.

How FSAs, HRAs & HSAs are impacted starting 1/1/2011

The Patient Protection and Affordable Care Act (PPACA) of 2010 will change the rules for purchasing over-the-counter (OTC) medicines or drugs using Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA) or Health Savings Accounts (HSA).

The popularity of accounts like FSAs is driven by tax-saving benefits for both employees and employers. A typical employee can expect to save $420 annually while the financial benefit for employers is avoiding the 7.65% FICA tax on employee wages diverted to an FSA.

While the motivating tax benefits will remain intact under the new reform law, careful communication on how OTC medicines or drugs qualify for reimbursement will be key to continuing to benefit from tax advantages.  
 

·        What will qualify as a tax-free & reimbursable FSA, HRA or HSA expense?

Starting January 1, 2011 expenses for medicines or drugs will qualify as tax-free and reimbursable by an employer-provided health plan, including an FSA, HRA or HSA, only if:

• the medicine or drug requires a prescription
• is an over-the-counter medicine or drug and the individual obtains a prescription; or
• is insulin

Therefore, for OTC medicines and drugs to be reimbursable an individual must obtain a prescription. 
 

·        How will FSA, HRA and HSA debit cards be impacted?

 ·        These debit cards may not be used to purchase OTC medicines or drugs.

• Since OTC medicines and drugs must be substantiated before a reimbursement can be made, individuals must pay out-of-pocket at the time of purchase and then submit a reimbursement claim along with a copy of the prescription.

Note: Debit cards may continue to be used for OTC items that are not considered a medicine or drug (i.e. bandages, contact lens solution)

HEALTH CARE REFORM

Tax Credit Helps Small Employers Provide Health Insurance Coverage

Many small businesses that provide health insurance coverage to their employees may now qualify for a special tax credit.  Included in the Patient Protection and Affordable Care Act, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low to moderate-income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. The maximum credit goes to smaller employers — those with 10 or fewer FTEs — paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011.

Reporting Employee Cost Information on W-2's is Optional for 2011

As part of the Patient Protection and Affordable Care Act (PPACA), employers are required to report the aggregate cost of employer-sponsored coverage on each employee's W-2. Initially, employers were to begin reporting this information with the 2011 W-2's. However, in an attempt to provide system adjustment time, the IRS has issued Notice 2010-69, which states that employers now have the option to report for 2011; it is no longer a requirement.

In addition, a draft form W-2 has also been issued (http://www.irs.gov/pub/irs-utl/draft_w-2.pdf), which contains cost of coverage codes applicable to employer-sponsored group health plans. Additional guidance about this new reporting requirement is expected from the IRS later this year. The IRS has stressed that reporting is for informational purposes only, to provide employees with increased healthcare cost transparency. Amounts reported are not taxable.

How FSAs, HRAs & HSAs are impacted starting 1/1/2011

The Patient Protection and Affordable Care Act (PPACA) of 2010 will change the rules for purchasing over-the-counter (OTC) medicines or drugs using Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA) or Health Savings Accounts (HSA).

The popularity of accounts like FSAs is driven by tax-saving benefits for both employees and employers. A typical employee can expect to save $420 annually while the financial benefit for employers is avoiding the 7.65% FICA tax on employee wages diverted to an FSA.

While the motivating tax benefits will remain intact under the new reform law, careful communication on how OTC medicines or drugs qualify for reimbursement will be key to continuing to benefit from tax advantages.

·         What will qualify as a tax-free & reimbursable FSA, HRA or HSA expense?

Starting January 1, 2011 expenses for medicines or drugs will qualify as tax-free and reimbursable by an employer-provided health plan, including an FSA, HRA or HSA, only if:

• the medicine or drug requires a prescription
• is an over-the-counter medicine or drug and the individual obtains a prescription; or
• is insulin

Therefore, for OTC medicines and drugs to be reimbursable an individual must obtain a prescription.
 

·         How will FSA, HRA and HSA debit cards be impacted?  

·         These debit cards may not be used to purchase OTC medicines or drugs.

• Since OTC medicines and drugs must be substantiated before a reimbursement can be made, individuals must pay out-of-pocket at the time of purchase and then submit a reimbursement claim along with a copy of the prescription.

Note: Debit cards may continue to be used for OTC items that are not considered a medicine or drug (i.e. bandages, contact lens solution)