HEALTH CARE REFORM SUMMARY

The recently enacted Patient Protection and Affordability Care Act, as amended by the Health care and Education Reconciliation Act of 2010 (together Reform), may have significant impact on how we operate our businesses. Many of the provisions of the Reform are delayed-some do not take effect until 2013, 2014, or 2018. The Internal Revenue Code has a number of changes. The article addresses 2009 and 2010 effective changes.

Small Business Credit

Eligible small employers are entitled to take a 35 percent tax credit for premiums paid toward health care coverage. Small employer is an employer with no more than 25 full-time employees and average annual compensation is not greater than $50,000. The credit phases out as the number of employees is greater than 10 with annual compensation of $25,000, and is totally phased out once 25 full-time employees and $50,000 average annual compensation level is reached.

Certain owner/employees are excluded from the definition of employee including self-employed individual, 2 percent shareholders of an S corporation, a 5 percent owner of a small business and certain related individuals. FAQ are available on the IRS website. The credit is effective for tax years beginning after December 31, 2009.

Adult Children

Effective March 30, 2010 adult children of employees through the age 26 are to be treated as if they are dependents of the employees and allowed dependent coverage under employer’s group heath insurance plans.

Increase in Adoption limits

Reform included a $1,000 increase in limits available under the adoptions credit. This effectively increases the limit to $13,170. Change is effective for tax years beginning after December 31, 2009.

Student Loan Forgiveness

Repayments under state loan repayment or forgiveness programs that are intended to provide for the increased availability of health care services in underserved or health-professional-shortage areas are excluded from gross income. This change applies to amounts received by an individual in tax years beginning after December 31, 2008.

Native American Health Care

Qualified health care benefits provided to an individual tribe by an Indian tribal government or tribal organization, including spouse and dependents are excluded from gross income. This change is effective after March 23, 2010.

Limiting Executives

Those executives (officer, director or employees) earning more than $500,000 have limits on the deduction of the individuals health care costs. This change applies to amounts received by an individual in tax years beginning after December 31, 2009. Certain provisions of the Reform apply starting in 2013.

Group Health Plans

New requirements including extension of dependent coverage, mandatory preventive services, prohibition of lifetime benefits and unreasonable annual limits. Change is effective after March 23, 2010.

Conclusion

My suggestion is to spend some time with your benefits provider to get a road map as to how to best use the new rules, and to make sure that you and your business stay compliant. We have a number of excellent resources we would be happy to provide. Good luck!