the whitlock company what health care reform means for your business
Post on 22-Dec-2015
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The Whitlock Company
Definitive Healthcare Update
Overview• Small employer tax credit• W-2 changes• Changes to HSA’s• 1099 changes• Medicare payroll tax• Medicare tax on net investment income• Employer required health insurance coverage
The Whitlock Company
Definitive Healthcare Update
SMALL BUSINESS TAX CREDITEffective 1/1/2010
Incentive for small businesses to provide their employees with group health insurance coverage
Businesses with 10 or less full-time-equivalent (FTE) employees– Average annual earnings less than $25,000 a year– Maximum credit of 35% of health insurance costs
The Whitlock Company
Definitive Healthcare Update
SMALL BUSINESS TAX CREDITEffective 1/1/2010
Credit phase-out
Companies with FTEs between 11 and 25 workers– average annual wages of up to $50,000 – eligible for partial credits
The Whitlock Company
Definitive Healthcare Update
SMALL BUSINESS TAX CREDIT (cont.)Effective 1/1/2010
TAX EXEMPT EMPLOYERS-Same criteria for FTEs and annual wages-Reduced credit rate of 25% -More guidance to be issued on how to claim the credit
The Whitlock Company
Definitive Healthcare Update
SMALL BUSINESS TAX CREDITEffective 1/1/2010• Employer must pay at least 50% of health insurance
premiums• Credit
– Offsets Income tax liability only– Can NOT offset employment taxes (941, etc.)– Will flow through for partnerships and S Corporations to
shareholders– Non-refundable – Reduces insurance tax expense deduction
The Whitlock Company
Definitive Healthcare Update
SMALL BUSINESS TAX CREDITEffective 1/1/2010• Employer meets the FTE test as long as FTEs are less
than 25 (total employees may be more than 25 considering part time individuals)
• Owner-types are excluded from FTE count:– Owners– Partners/members – > 2% shareholders – Owner’s family or household members
The Whitlock Company
Definitive Healthcare Update
SMALL BUSINESS TAX CREDIT (cont.)Effective 1/1/2010
Calculation of creditDetermine Full Time Equivalents (FTEs)1. Calculate total hours worked per employee2. Divide by 2080 to determine FTEs
Determine Average Wages3. Calculate total FICA wages paid to all employees4. Divide by FTEs
The Whitlock Company
Definitive Healthcare Update
EXAMPLE #1 (Full credit)
Facts:# of Employees Annual
Hours/Employee Total Hours Limited to 2,080/employee
5 2,080 10,400 10,400
3 1,040 3,120 3,120
1 2,300 2,300 2,080
9 15,820 15,600
The Whitlock Company
Definitive Healthcare Update
EXAMPLE #1 Answer Calculation:
Total Hours 15,600Full-Time Hours (divided by) 2,080FTE 7.50FTE Rounded Down 7
The Whitlock Company
Definitive Healthcare Update
EXAMPLE #1 AnswerFacts:
Total Wages 150,000FTE 7
Calculation:Total Wages 150,000FTE (divided by) 7Avg Wages 21,429Avg Wages (Rounded Down to nearest 1000) $21,000
The Whitlock Company
Definitive Healthcare Update
EXAMPLE #1 AnswerFTE 7Average Annual Wages 21,000Health Care Premiums – Employer Paid 40,000
Calculation:Health Care Premiums 40,000Allowable Credit Percentage 35%Credit $14,000
The Whitlock Company
Definitive Healthcare Update
EXAMPLE #2 (Partial Credit)
Facts:FTE 12Average Annual Wages 30,000Health Care Premiums – Employer Paid 40,000
The Whitlock Company
Definitive Healthcare UpdateEXAMPLE #2 (Partial Credit)
Credit Calculation:40,000 * 35% = 14,000Credit Reduction for FTE greater than 10:14,000*((12-10)/15) = 1,866Credit Reduction for Average Wages greater than $25,00014,000*((30,000 – 25,000)/25,000) = 2,800Total Credit Reduction:1,866 + 2,800 4,666Total 2010 Tax Credit:14,000 – 4,666 = $9,334
The Whitlock Company
Definitive Healthcare Update
REPORTING HEALTH CARE BENEFITS ON W2sEffective in 2011, reporting in January 2012• Employers responsible for reporting the value of the health care benefits they provide to employees on their 2011 W2
The Whitlock Company
Definitive Healthcare Update
REPORTING HEALTH CARE BENEFITS ON W2sEffective in 2011, reporting in January 2012
• Reporting requirement does not make the amount taxable to the employee
The Whitlock Company
Definitive Healthcare Update
REPORTING HEALTH CARE BENEFITS ON W2sEffective in 2011, reporting in January 2012• Update payroll systems effective 1/1/2011 for
reporting purposes (discuss with software vendor if applicable)
• Where do you get the values for the W2?– Health insurance company for fully insured plans– Third party administrators for self-funded plans
The Whitlock Company
Definitive Healthcare Update
REPORTING HEALTH CARE BENEFITS ON W2s
• Health plans that are NOT included on W2:– Flexible spending amounts– Specified illness or disease, (i.e. cancer)– Disability insurance– Workers’ compensation
The Whitlock Company
Definitive Healthcare Update
REPORTING HEALTH CARE BENEFITS ON W2s
Possible W2’s for Non-Employees?This issue will be spelled out in later regulations• Retirees• COBRA participants
The Whitlock Company
Definitive Healthcare Update
INCREASED VENDOR 1099 REPORTINGEffective at 1/1/2012 for January 2013 1099 reporting• New requirement considered as a “pay for” to
provide other tax cuts • Joint Committee on Taxation estimates it will raise
$17 to $19 billion in additional revenue• Will effect every business at this point unless
legislation is changed
The Whitlock Company
Definitive Healthcare Update
INCREASED VENDOR 1099 REPORTINGEffective at 1/1/2012 for January 2013 1099 reporting
PRIOR LAW• Payments in excess of $600• Payments to corporations were exempt from
reporting requirement• Generally issued for services (i.e. contract labor),
rent, interest
The Whitlock Company
Definitive Healthcare Update
INCREASED VENDOR 1099 REPORTINGEffective at 1/1/2012 for January 2013 1099 reporting
NEW LAW• Payments in excess of $600• No corporate exemption (All vendors to receive
1099s)• Payments for ALL goods, services, and property to
be reported
The Whitlock Company
Definitive Healthcare Update
INCREASED VENDOR 1099 REPORTING Effective at 1/1/2012 for January 2013 reporting
Could dramatically increase accounting and reporting costs to all businesses. START PLANNING NOW
Example: Small business owner selling collision parts speaking to Senate leaders “I am going to go from preparing four 1099 forms to somewhere over 200.”
The Whitlock Company
Definitive Healthcare Update
INCREASED VENDOR 1099 REPORTINGEffective at 1/1/2012 for January 2013 1099 reporting
Need to start obtaining taxpayer id numbers for each vendor via
Form W-9.
The Whitlock Company
Definitive Healthcare Update
INCREASED VENDOR 1099 REPORTINGEffective at 1/1/2012 for January 2013 1099 reporting
This process would need to be completed by 1/1/2012 in order for accounting software to capture data.
Back-up withholding may be required for any vendor not supplying their federal ID number before payment is made to that vendor.
The Whitlock Company
Definitive Healthcare Update
INCREASED VENDOR 1099 REPORTING
PROPOSED LEGISATION Fully Repeal
ORExempt Companies with fewer than 25 employees and
Companies with more than 25 employees raise reporting amount from $600 to $5,000
Credit card purchases to be exempt
The Whitlock Company
Definitive Healthcare Update
OVER THE COUNTER MEDICATIONSEffective beginning 1/1/2011• Ban on OTC medication reimbursed from:– Flexible spending accounts (FSAs) through a cafeteria plan– Health reimbursement arrangements (HRA)– Health savings accounts (HSA)
Unless the physician formally prescribes the OTC medications
The Whitlock Company
Definitive Healthcare Update
HEALTH SAVINGS ACCOUNTSEffective beginning 1/1/2011
• Penalties increase to 20%– for non- medical distributions from • Archer MSAs (medical savings accounts) • HSAs (health savings accounts)
The Whitlock Company
Definitive Healthcare Update
MEDICARE PAYROLL TAXEffective in 2013• New tax 0.9% wages – Not matched by employer– 401K (deferred comp) are EXEMPT*– In addition to 1.45% Medicare tax w/hldg
• Employer must:– Withhold on wages over $200,000 for an employee
The Whitlock Company
Definitive Healthcare UpdateMEDICARE PAYROLL TAXEffective in 2013
• Wage threshold amounts :– $200K for single– $250K for married filing jointly– $125K for married filing separately
• Individuals must:– Compute 0.9% tax on aggregate wages on Form 1040– Any balance due, pay with 1040– Consider higher estimated tax payments
The Whitlock Company
Definitive Healthcare Update
MEDICARE PAYROLL TAX
EXAMPLE:Jack has $200k W-2 from XYZ CorporationSally, his wife, has $210k W-2 from ABC Corporation
XYZ withholds no 0.9% tax: $200,000 – 200,000 = no excess, no tax
ABC withholds 0.9% tax:($210,000 – 200,000) = $10,000 excess x .9% = $90 medicare tax withheld
cont…
The Whitlock Company
Definitive Healthcare Update
EXAMPLE: cont…1040 – Married filing jointlyCompute their additional tax:
Jack’s W-2 $200,000Sally’s W-2 210,000Total wages 410,000Threshold for MFJ 250,000 Taxable portion 160,000
x _ 0.9%Total tax 1,440
Less (Sally’s withholding) - 90Balance due 04/15 $ 1,350
The Whitlock Company
Definitive Healthcare Update
MEDICARE TAX ON “NET INVESTMENT INCOME”
Effective in 2013• 3.8% Medicare tax in ADDITION to all other Medicare
taxes• Tax is based on “net investment income” for
- individuals- estates- trusts
The Whitlock Company
Definitive Healthcare Update
MEDICARE TAX ON “NET INVESTMENT INCOME”Effective in 2013
What is “Net Investment Income”?• Interest income• Dividend income• Annuity income• Royalty income• Rent income• Net gains (ordinary and capital) sale of property• Passive investment income • Commodity trading
The Whitlock Company
Definitive Healthcare Update
MEDICARE TAX ON “NET INVESTMENT INCOME”Effective in 2013
Exemptions:• Sale of a personal residence • Gains on sale of business if “active participation”• Interest income on municipal bonds• IRA, qualified retirement plan distributions• Income subject to self-employment tax• Nonresident aliens
The Whitlock Company
Definitive Healthcare Update
MEDICARE TAX ON “NET INVESTMENT INCOME”
Effective in 2013
Tax computed on the lesser of:• An individual’s “net investment income”• OR the excess of the individual’s modified
adjusted gross income (AGI) over threshold amounts
The Whitlock Company
Definitive Healthcare Update
MEDICARE TAX ON “NET INVESTMENT INCOME”
Effective in 2013• Threshold amounts are the same as the 0.9%
Medicare payroll tax:• $200K for single • $250K for married filing jointly • $125K for married filing separately
The Whitlock Company
Definitive Healthcare Update
MEDICARE TAX ON NET INVESTMENT INCOMEEffective 2013
EXAMPLE:Sally is single:
ABC Corp W-2 $180,000XYZ Corp W-2 __ 50,000 Total wages 230,000Interest and dividend income 250,000Modified AGI $ 480,000
The Whitlock Company
Definitive Healthcare Update
MEDICARE NET INVESTMENT INCOME TAXEXAMPLE (cont.)
She will owe the lesser of: Net investment income of $250,000
x 3.8% $ 9,500
ORModified AGI $480,000
x__ 3.8% $ 18,240
The Whitlock Company
Definitive Healthcare UpdateMEDICARE NET INVESTMENT INCOME TAX COMBINED WITH PAYROLL TAX:
Sally owes $9,500 for NII Medicare Tax, plus the 0.9% Medicare payroll tax calculated below:
Total wages (180k + 50k) $ 230,000Less threshold for single - 200,000
30,000x 0.9%
Medicare payroll tax due $ 270Sally owes $9,770 for both.
The Whitlock Company
Definitive Healthcare Update
NEW LIMITS ON CAFETERIA PLANSEffective 1/1/2013New limits for health portion of FSA (cafeteria plans)
deferrals• OLD LAW:– No limit on election amount
• NEW LAW:– $2,500 limit per year– Amount indexed for inflation after 2013
The Whitlock Company
Definitive Healthcare Update
LARGE EMPLOYER MANDATEEffective 1/1/2014• To avoid health insurance excise taxes, large
employers must provide:– At least 50% of health insurance premium AND– At least 60% of the plan’s share of total allowed cost
of benefits of plan
– OR if the minimum essential coverage is unaffordable for the employee
The Whitlock Company
Definitive Healthcare Update
LARGE EMPLOYER MANDATEEffective 1/1/2014
Who is a Large Employer?Defined as a business employing:• average of at least 50 full-time employees• during the preceding calendar yearWhat is considered “full-time”?• Full-time means work at least 30 hours per week• All other employees counted on prorated basis
The Whitlock Company
Definitive Healthcare Update
LARGE EMPLOYER MANDATEEffective 1/1/2014
The Excise Taxes (penalty/fine):Excise tax of a maximum of $2,000 per employee, per year
• The first 30 employees don’t count in the penalty
$2,000 Excise tax amountx 1/12 Monthly portionx # of months not providing insur benefitx (Total employees – 30*) *reduction provided by Act= Total excise tax for that year
The Whitlock Company
LARGE EMPLOYER MANDATEEffective 1/1/2014
Additional $3,000 penalty for lower income employees if:
•Receive subsidies OR•Purchase insurance direct from insurance exchanges
Definitive Healthcare Update
The Whitlock Company
Definitive Healthcare Update
LARGE EMPLOYER MANDATEEffective 1/1/2014
Effect on “Small” Businesses: Most small businesses = fewer than 50 employees
Don’t HAVE to provide health insuranceBUT - there are the incentives:– tax credits – shopping the health insurance exchanges