The following is a letter we sent to our clients regarding the recently passed Health Care Reform Act:
RE: Health Care Reform is Also Tax Reform
As I am sure you are aware, Congress just passed the massive Health Care Reform Act. You may not know that the bill includes many tax law changes that the Congressional Budget Office says the IRS will need $10 billion and 17,000 new employees to enforce its share of the new rules? It's true! Here are just a few key tax changes:
• Starting this year, certain small businesses with fewer than 10 employees will get a 35% credit for the cost of providing employee health benefits.
• Starting in 2011, employers will have to report the value of health benefits on Form W-2.
• The penalty tax for Health Savings Account distributions not used for health care expenses doubles, to 20%. This will discourage using HSAs for supplemental retirement savings.
• Starting in 2013, the 7.5% floor for deducting medical and dental expenses climbs to 10% (unless you or your spouse are 65 or older, in which case it remains at 7.5% until 2016).
• Healthcare flexible spending account contributions are capped at $2,500 per year.
• Starting in 2014, businesses with more than 50 employees will have to offer health benefits or pay a penalty of $2,000 per employee.
The reconciliation bill that accompanied the act includes one more unwelcome change. Currently, the Medicare tax is limited to 2.9% of earned income. The reconciliation bill raises that tax by 0.9% of earned income above $200,000 (individuals) or $250,000 (families). It also adds a 3.8% "Unearned Income Medicare Contribution" on investment income (interest, dividends, annuities, royalties, capital gains, and rents) for taxpayers with Adjusted Gross Incomes above those same thresholds. Those new taxes would take effect in 2013.
The complete bill is 1,018 pages long! So it's going to take some time to analyze. But we'll pay close attention and keep you informed as details become available. Watch our website for our upcoming FREE Health Care Reform Webinar. You may also check out our Small Business Health Care Tax Credit Savings Worksheet on our webite. In the meantime, if you have any questions, be sure to call us at 1.800.975.4829.
It is a pleasure serving you.
Larry Kopsa CPA
