Benjamin Franklin said: “In this world nothing can be said to be certain, except death and taxes.”
For almost 60 years, April 15 has meant “Tax Day,” or the day when individuals must submit their income tax returns to the Federal Government. The Sixteenth Amendment to the United States Constitution establishes Congressional “power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Three years since its passage, the Affordable Care Act (ACA) has become inextricably connected to the laws of federal taxation. The following overview explains some key points of intersection:
Disclosure or Use of Information by Tax Return Preparers
On December 28, 2012, rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers became the law. Additional information can be found here (Internal Revenue Bulletin – January 14, 2013).
Medical Loss Ratio (MLR)
Complicated enough by itself, the Medical Loss Ratio (MLR) regulations intersect with the laws of taxation when an insurance company pays a MLR rebate to an individual policyholder or group plan. Additional information appears here.
Reporting Employer Provided Health Coverage in Form W-2
The ACA requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. The amount reported does not affect tax liability, but this informational report was due for W-2s issued in 2013.
Net Investment Income Tax
A new Net Investment Income Tax goes into effect starting in 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. IRS and the Treasury Department proposed regulations appear here.
Additional Medicare Tax
A new Additional Medicare Tax goes into effect starting in 2013. The 0.9% Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. IRS and the Treasury Department proposed regulations can be found here.
Starting in 2014, whether an eligible employer-sponsored health plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment. These regulations appear here.
Small Business Health Care Tax Credit
This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees, with a focus on low and moderate income workers. The federal government hopes the credit will encourage small employers to offer health insurance coverage for the first time or maintain existing coverage. Additional information can be found here.
Health Flexible Spending Arrangements
Since January 1, 2011, the cost of an over-the-counter medication was no longer reimbursable from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements, absent a prescription. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. A similar rule applies to Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees must now consider these changes when evaluating health benefits. Additional information can be found here. Starting in 2013, new rules limit contributions to an FSA. For additional information, see IR-2010-95, Notice 2010-59 and Revenue Ruling 2010-23.
Medical Device Excise Tax
On December 5, 2012, the IRS and the Treasury Department issued regulations on the new 2.3% medical device excise tax that manufacturers and importers will pay on their sales of certain medical devices as of January 1, 2013. Additional guidance also appears here.
Health Insurance Premium Tax Credit
In 2014, individuals and families have access to a premium tax credit to assist in purchasing health insurance coverage through an Affordable Insurance Exchange. The premium tax credit is refundable, and it can be paid in advance to a taxpayer’s insurance company. Regulations issued on May 18, 2012, appear here. Regulations issued on January 30, 2013, explained the premium tax credit affordability test for related individuals.
Individual Shared Responsibility Provision
Starting in 2014, the Individual Shared Responsibility provision calls for each individual to have minimum essential health coverage, qualify for an exemption, or make a payment when filing his or her federal income tax return. The January 30, 2013, proposed regulations offer more information on the Individual Shared Responsibility provision, and additional regulations about exemptions and minimum essential coverage is available also appears here.
Health Coverage for Older Children
The ACA extended tax-free, health insurance coverage for an employee’s children under 26 years of age. These changes allow employers with cafeteria plans and self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Additional information appears here.
Excise Tax on Indoor Tanning Services
Starting July 1, 2010, a 10% excise tax on indoor UV tanning services went into effect. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The law does provide for an exception when qualifying physical fitness facilities offer tanning as an incidental service. Additional information appears here.
For tax years 2010 and 2011, the ACA raised the maximum adoption credit per child (and the credit was refundable). Additional information appears here, as well as in Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52. The 2012 credit, however, is nonrefundable, and there is also a maximum amount (dollar limitation) of $12,650 per child. Additional information appears here.
Transitional Reinsurance Program
The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. Information on the tax treatment of these contributions appears here.
Medicare Shared Savings Program
The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. Information for tax-exempt organizations participating in the MSSP through an ACO appears here.
Qualified Therapeutic Discovery Project Program
This provides tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support domestic job opportunities and increase competition abroad. Applicants must certify research projects first. Additional information appears here.
Group Health Plan Requirements
The ACA established new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans appears in Notice 2011-1. Additionally, TD 9575 and REG-140038-10, issued by Department of Labor (DOL), Department of Health and Human Services (HHS) and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts. On March 19, 2013, HHS, DOL and IRS issued proposed regulations on the ninety-day waiting period limitation.
Annual Fee on Health Insurance Providers
The ACA created an annual fee on certain health insurance providers beginning in 2014. On March 1, 2013, the Treasury Department and IRS issued these proposed regulations.
Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers
The ACA required HHS to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provided for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). Proposed regulations outlined the requirements for tax exemption under section 501(c)(29). Revenue Procedure 2012-11 sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).
Additional Requirements for Tax-Exempt Hospitals
The ACA added certain requirements for charitable hospitals. (See Notice 2010-39 and Notice 2011-52.) On June 22, 2012, the IRS issued requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 3, 2013, the IRS issued Notice 2011-52 on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. The regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the requirements.
Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers
The ACA required an annual fee (starting in 2011) by certain manufacturers and importers of brand name pharmaceuticals. Additional regulations were issued in August 2011. In November 2011, the IRS issued Notice 2011-92 which provides additional guidance for 2012. In November 2012, the IRS issued Notice 2012-74, providing similar guidance for the 2013.
Employer Shared Responsibility Payment
Recently delayed until 2015, certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On December 28, 2012, the Treasury Department and the IRS issued proposed regulations on the Employer Shared Responsibility provisions. Additional information appears in news releases IR-2011-92 and IR-2011-50 and Notices 2011-73, 2011-36, 2012-17 and 2012-58.
Patient-Centered Outcomes Research Institute
The ACA established the Patient-Centered Outcomes Research Institute. Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will assist patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans. The IRS and the Treasury Department final regulations appear here.
Retiree Drug Subsidies
Certain special subsidy payments for retiree drug coverage made under the Social Security Act are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after January 1, 2013, here affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies.