Service Areas

Healthcare Reform: Credits and Penalties

By: John M. Prelac

Small Business Tax Credit in 2010
Retroactive to January 1, 2010

1. Designed to increase levels of health insurance coverage.

2. 35% credit for profit (2010-2013).

3. 25% credit for tax exempt (2010-2013).

4. 50% credit for profit (2014).

5. 35% credit for tax exempt (2014).

Who Qualifies?

1. Employers with 25 or fewer full-time equivalent employees;

2. With average annual wages less than $50,000 per full-time equivalent employee; and

3. The employer pays at least 50% toward cost of employee health premium.

A temporary small business tax credit is available for some firms who provide qualified health coverage. However, the credit puts small business owners through a series of complicated tests to determine the actual amount of the credit. (1) Very few small firms will receive the full credit (only firms with 10 employees or less). For firms with 11-25 employees, the credit is reduced per employee. Firms with more than 25 employees get NO credit. (2) Only firms who pay their workers an average of $25,000 or less are eligible for the full credit. The credit is reduced as the average wage goes up, stopping when it reaches $50,000. (3) Only firms covering 50% or more of insurance costs will be eligible. (4) The credit is only available for a maximum of six years. There are additional provisions for start-up firms beginning business after the enactment of this law.

Seasonal Workers

1. "Seasonal Worker" means a worker who performs labor and services on a seasonal basis as defined by the Secretary of Labor and retail workers employed exclusively during holiday seasons.

2. Wages and hours of seasonal employees are NOT counted, UNLESS
The worker works for the employer on more than 120 days during the taxable year.


Other Employees Excluded

1. An employee within meaning of US Code Section 401(c)(1) - self employed.

2. Any 2% shareholder of an eligible small business S Corporation.

3. Any 5% shareholder of an eligible small business.

4.Any individual who bears any of the relationships described in subparagraphs (A) through (G) of Section 152(d)(2) to any of the above.

5. Any individual who is a dependent described in US Code Section 152(d)(2)(H) to any of persons described in 1-3 above. Note: A person, who is not a spouse, that has the same principal place of abode, is a member of the household.

Full Credit is Limited

6. Only businesses with 10 or fewer full-time employees; and

7. Average wages less than $25,000.

Credit reduced, on pro rata basis until employer with 25 employees and average of $50,000.

*Is Credit Refundable? NO.
Can offset alternative minimum tax.

Elimination Medicare Part D Retiree Drug Subsidy
Effective 2013

1. Accounting rules require that liability is booked now.

2. Employer receives subsidy from federal government may no longer deduct on federal income tax return the amount of subsidy.


W-2 Requirements
Effective 2011

1. W-2 required to show cost of employer-provided coverage.

• Cost based on applicable cobra premiums.

• Insured health plan = applicable premium paid.

• Self-Insured Plan = cost determined by plan's actuary.


Individual Tax Increases
Effective 2013

1. Wages for single person above $200,000.

2. Couples over $250,000.

3. Medicare 0.9% surtax on wages over excess.

4. Employers must withhold once wages reach threshold.

5. Self-employed pay on form 1040.

6. Not indexed for inflation.

Additional Taxes
Effective 2013

1. 3.8% Medicare tax on unearned income.

2. Interest, dividends, capital gains, royalties, passive rental income.

3. Does not include tax-exempt interest or retirement plan payouts.

4. Singles with AGI in excess of $200,000.

5. Couples over $250,000.

Excise Tax
Effective 2018

1. "Cadillac" Health Care Plans.

2. 40% of the value in excess of $10,200 for single coverage.

3. 40% of excess of $27,500 for family coverage.

4. Imposed on insurer or third party administrator.

For more information on how healthcare reform will impact your business please attend the Healthcare Seminar this June 2010 or contact John M. Prelac.