Now that the bill to repeal and replace the Affordable Care Act
(ACA) has been withdrawn and it’s uncertain whether there will be any other
health care reform legislation this year, it’s a good time to review some of
the tax-related ACA provisions affecting businesses:
Small employer tax credit. Qualifying
small employers can claim a credit to cover a portion of the cost of premiums
paid to provide health insurance to employees. The maximum credit is 50% of
premiums paid by the employer, provided it contributes at least 50% of the
total premium or of a benchmark premium.
Penalties for not offering complying
coverage. Applicable large employers (ALEs) — those with at least 50
full-time employees (or the equivalent) — are required to offer full-time
employees affordable health coverage that meets certain minimum standards. If
they don’t, they can be charged a penalty if just one full-time employee
receives a tax credit for purchasing his or her own coverage through a health
care marketplace. This is sometimes called the “employer mandate.”
Reporting of health care costs to employees. The ACA
generally requires employers who filed 250 or more W-2 forms in the preceding
year to annually report to employees the value of health insurance coverage
they provide. The reporting requirement is informational only; it doesn’t cause
health care benefits to become taxable.
Additional 0.9% Medicare tax. This
applies to:
- Wages and/or self-employment (SE) income above $200,000
for single and head of household filers, or
- Combined wages and/or SE income above $250,000 for
married couples filing jointly ($125,000 for married couples filing
separately).
While there is no employer portion of this tax, employers are
responsible for withholding the tax once an employee’s compensation for the
calendar year exceeds $200,000, regardless of the employee’s filing status or
income from other sources.
Cap on health care FSA contributions. The
Flexible Spending Account (FSA) cap is indexed for inflation. For 2017, the
maximum annual FSA contribution by an employee is $2,600.
There’s also one significant change that hasn’t kicked in yet:
Beginning in 2020, the ACA calls for health insurance companies that service
the group market and administrators of employer-sponsored health plans to pay a
40% excise tax on premiums that exceed the applicable threshold, generally
$10,200 for self-only coverage and $27,500 for family coverage. This is
commonly referred to as the “Cadillac tax.”
The ACA remains the law, at least for now. Contact us if you
have questions about how it affects your business’s tax situation.
© 2017
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