Your Tax Question - 045 (Part B)

(Continued from Your Tax Question - 045 (Part A))

I won't try to detail all of the items that are new in 2010 because of the Health care Act but I will point out some of the details that will affect most individual tax payers...

2010:

* Tanning Services Excise Tax - This is a 10% tax on all tanning services. As of July 1, 2010 owners of tanning service facilities are required to charge their customers a 10% sales tax on the tanning service and remit those monies quarterly to the IRS. If the business is a health facility that offers health and fitness services but allows its members to use tanning beds as part of the membership then there is no excise tax.

* Small Business Health Insurance Credit - For eligible small employers (ESE) who provide their employees with health insurance a credit may be available. An ESE must have no more than 25 full-time equivalent (FTE) employees [NOTE: A full-time employee is one who works 30 hrs a week for this credit] and an average of $50k per year annual salary per employee including the owner's wage. [Should this be called the Good Luck Small Business Health Insurance Credit?]

* Child Under 27 & Employer-Provider Health Insurance - It used to be that your children were allowed to be on your employer provided health insurance until they turned 24 so long as they were students in an accredited higher education program. Now, your child is allowed to be on your health insurance until the end of the year that they turn 27 years of age and they need only be your child - not even in school.

* Adoption Credit - Under the old law the maximum credit was $12,170 but under this plan the credit is increased by $1000 to $13,170.

While there are more changes to this and the details shared are more intensive than this I hope to have helped you see some of the changes that may effect you for this coming tax season. In Part C of this series I will share a little about the future proposed changes for 2011 and beyond.

John

Your Tax Question - 045 (Part A)

Dear John, I have been hearing all sorts of stories about tax implications of the new Health Care Bill. Can you tell me about what is official and what is hog's-swallow? Thanks, Byron.

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Hi Byron,

There is certainly a lot of speculation about the new 2010 Health Care Act. Before I try to explain what I know, let me clarify that my information is current as of this moment (11/9/2010). Congress has gone on recess and tthey are expected to return before the end of the year to massage the detail. However, that is the nature of taxes, it is only ever current FOR NOW. With that stated, let me details some of the items of interest.

On March 23, 2010 Congress passed, and the President signed into law, new legislation dealing with health care, consisting of H.R. 3590, the Patient Protection and Affordable Care Act and H.R. 4872, the Health Care and then the Education Reconciliation Act of 2010 (Reconciliation Act on March 30, 2010). The most important part of the new health reform law act seems to be the mandate for most U.S. residents to obtain health insurance. This mandate carries with it many new TAX RULES such as:

1. Penalties for individuals who choose to remain uninsured,

2. Tax credits for participating in new insurance coverages,

3. Penalties for larger employers that do not provide insurance (or provide coverage deemed

inadequate or unaffordable),

5. A voucher system for certain lower income employees who choose not to be covered by the

company health plan, and

6. The definition of who is a dependent for an employer health plan (and other purposes) has been expanded.

This Health Care Act is paid for with taxes, penalties and tougher rules for health care related exclusions and deductions. Without getting too political, this legislation could have easily been called the "Tax The Hell Out Of'm Act" to be more to the point. I won't go into too many details but in summary some of the new provisions include:

1. Surtax on “Cadillac” employer health plans,

2. Increased Medicare Tax for higher income individuals,

3. New Medicare Tax on unearned income for higher income individuals,

4. New 10% AGI for deducting medical expenses,

5. New limits on FSA contributions under cafeteria plans,

6. Limits on executive compensation deduction for insurance providers,

7. Annual fees for pharmaceutical companies, manufacturers and importers of medical devices,

and health insurance providers,

8. Codification of the Economic Substance Doctrine and imposition of new penalties,

9. Information reporting for payments to corporations,

10. Eliminating the credit for “black liquor,” and

11. Estimated tax changes for large corporations.

This Health Care Act legislation also creates a few new benefits:

1. A “simple” cafeteria plan for small businesses,

2. Increases the adoption credit and adoption assistance,

3. Creates a new tax credit to stimulate new therapeutic discovery projects, and

4. Provides a new exclusion for certain health professionals.

Of course, all of this is implemented on a timeline that extends into 2018 so how all of it will pan-out has yet to be worked out. So this post doesn't get too cumbersome I will add more details in subsequent posts but for now I just wanted to give you an overview.

Best,

John

P.S. A prof once told me that everything I write has been lifted from someone, the point is to avoid plagiarism and give credit where credit is due. So I would like to credit the UMTax program and the materials that they provide for the information that I know (or at least think I know).