The recently enacted federal healthcare legislation will affect virtually everyone and will mean significant changes for patients, insurers, employers, hospitals and physicians. This is one of the largest changes to the tax laws in the past 30 years. Are you interested in finding out how the Reform will affect you or your business? We want to help. We are offering presentations to businesses and groups to provide information on how the Reform may impact you. For more information visit our website at www.kl-cpa.com.

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2. Healthcare Reform - Impact on Businesses and Individuals Stephen Blitz, CPA Craig Fabacher, CPA Ricky Rumney, CPA 2

4. Impact on your Business

5. Impact on you

6. Timetable for implementation3

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8. Background Information The Patient Protection and Affordable Care Act (The Patient Protection Act) The Health Care and Education Reconciliation Act of 2010 (2010 Reconciliation Act) Hiring Incentive Restore Employment (HIRE) Act 5

9. Background Information This bill was in the works for nearly a year Creates an individual mandate to attain health insurance Establishes state based exchanges by 2014 In essence, an open-market for insurance 6

10. Background Information Purpose of Healthcare bills is to: Provide coverage to 32 of 54 million Americans who currently do not have coverage Make Health Insurance affordable for people that may not work for a large employer Provide needed reform No denial for pre-existing conditions Removal of annual and lifetime caps Prohibiting the recession of coverage except for fraud No discrimination except for age and smokers Allow parents to cover children until age 27 7

11. Background Information $438 billion in revenue raisers and new taxes on employers and individuals New Medicare Taxes ($210 Billion) Changes in deductible non-reimbursed medical expenses Employer mandates ($60 Billion) $500 Billion in spending reductions (Largely in Medicare) $132 Billion in Medicare Advantage Plan cuts $232 Billion in Medicare schedule payer cuts $940 Billion costs over 10 years $434 billion for expansion of Medicaid and Children’s Health Insurance Plans $466 billion in subsidies to fund insurance for individuals and families up to 400% of the federal poverty level $40 billion in small employer tax credits 8

12. Minimum Essential Coverage Minimum essential coverage must pay at least 60% of the actuarial benefits Ambulatory Patient Services Emergency Services Hospitalization Maternity and newborn care Mental Health and substance use disorder services Prescription Drugs Rehabilitative and Habilitative services and devices Laboratory Services Preventative and wellness services (100% covered) Pediatric Services (including oral and vision care) 9

13. Impact on your Business Small Employer Health Insurance Tax Credit Large Employer Penalty Free Choice Vouchers New W2/1099 Reporting Requirements HIRE act Cafeteria Plans Changes Health Insurance Excise Tax Grandfather Plans 10

14. Small Business Tax Credits (2010) Only for employers with average wages of less than $50,000 and less than 25 employees Full credit if employer has less than 10 employees and average wages are less than $25,000 Employer must pay at least 50% of the premiums May be claimed against AMT liability LA Limits (IRC 45R) $4,829/Employee-only coverage $11,074/Family Coverage Most owners are not included in calculation Part-time employees are included in the calculations Credit requirements will change in 2014 11

15. Full-Time Equivalent Calculation Example A: Employer pays 5 employees for 2,080 hours each, 3 Employees for 1,040 hours each, and one employee for 2,300 hours. 5 employees x 2,080 hours = 10,400 hours 3 employees x 1,040 hours = 3,120 hours 1 employee (2,300 hours total worked) x 2,080 hours = 2,080 hours Total hours paid = 15,600 hours Total full-time equivalent workers = 7.5, but is rounded down to 7. 12

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17. Small Business Tax Credits Example B: Employer B pays $90,000 of insurance premiums and employs 10 employees with an average salary of $25,400 per year. They would be able to take the maximum credit of $31,500, if all the employees had family coverage. If all the employees had single coverage, then the maximum deduction would be $16,902 ($4,829 x 10 employees x 35% credit) 14

18. Small Business Tax Credits Example C: Assume the same situation as example B, but average wages of $30,000 and 15 employees 1) Initial Credit = $96,000 x 35% = 33,600 (Full Credit) 2) Credit Reduction for FTE’s over 10 =$33,600 x 2/15 = $4,480 3) Credit Reduction for average wages above $25,000 =$33,600 x [(30,000-25,000)/25000] = $6,720 4) Total Credit =$33,600 - $4,480 - $6,720 = $22,400 15

19. Large Employer Penalty (2014) Applies only to employers of 50 or more full-time employees (30 hours or more) Special calculation (FTE Equivalent) Employee Exceptions Controlled Group rules apply 3 variables No Insurance Unaffordable Insurance Adequate Insurance The penalty is not tax-deductible $166.67 a month per employee Extended Waiting Period Penalty 16

20. Large Employer Penalty Example: Employer A has 80 employees who he covers a portion of the premiums, but 10 employees choose to get insurance through their state insurance exchange and qualify for the Premium Assistance Tax Credit. They would be subject to $30,000 [10 x $3,000] penalty. If 35 employees chose to get insurance through their state insurance exchange and qualified for the Premium Assistance Tax Credit then Employer A would be subject to $100,000 [(80-30) x $2,000] penalty. 17

21. Free Choice Vouchers (2014) Employer required to offer and could result in avoiding large employer penalty Gives money to state exchanges for employee to get their own coverage In most cases, not taxable to employee Amount is Deductible 18

22. New Reporting Requirements New Health Insurance Filings (2011) Inclusion of cost on W-2 New reporting requirements for supplying minimum essential coverage (2014) New Form will be due 1/31 for previous year not yet released New 1099 Reporting Requirements (2012) Corporations are no longer exempt No longer only for services, but also in consideration of property and property and services 19

23. HIRE Act (2010) No employer share of social security tax (6.2%) for 2010 for a qualified new hire employee Specific requirements Employee must begin work after 2/3/2010 through 12/31/2010 Employee must not have worked more than 40 hours in last 60 day period Focuses on employing the Unemployed $1,000 retention tax credit Available at 1 year anniversary, among other requirements Extends the section 179 to $250,000 for 2010 20

24. Cafeteria Plans (2011) 21

25. Health Flexible Spending Accounts (2011) Currently no limit on contribution Contribution limited to $2,500 may excluded from tax (2013) There are not any changes for dependent care FSAs Unqualified HSA/FSA distributions will be subject to a 20% penalty (2011) Currently a 10% penalty 22

26. Simple Cafeteria Plans (2011) Certain small employers may elect to have these plans Eligible employers must have less than 101 employees Specific requirements still must be met, but nondiscrimination requirement is eased 23

27. Health Insurance Excise Tax (2018) 40% excise tax on high cost employer-sponsored health coverage (Also known as “Cadillac Plans”) Will not apply to most people $10,200 self-only / $27,500 for any other coverage Will be indexed for inflation after 2018, but not until then 24

28. Grandfathered Plans (2010) A group health plan that is in existence as of the date of enactment (3/23/2010) is considered grandfathered Exempts plans from some reform requirements May lose exemptions if the plan changes Applies to both individuals and businesses 25

29. Grandfathered Plans Do have to comply with the following requirements Do not have to comply with the following requirements Lifetime Limits Annual Limits Prohibition of rescissions Extensions of dependent coverage to age 26 Prohibition on length of waiting periods Automatic Enrollment for large employers Employer requirement to inform employees of coverage options Large Employer Penalties Reporting of employer health insurance coverage to IRS and employees Coverage of preventive health services Uniform explanation of coverage Prohibition of discrimination based on salary Appeals process Comprehensive health insurance coverage: Having to provide “essential health benefits” Having to cover at least 60% of the actuarial value of covered benefits Having annual cost-sharing limited to the current health savings account limits Deductibles for health plans in small group market limited to $2,000 for individuals and $4,000 for families unless contributions are offered to offset deductible amounts above these limits. 26

30. Grandfather Plan Changes Allowed (Increasing employee benefits) Not Allowed (Reducing of employee benefits) Small cost adjustments to keep pace with Medical Inflation Adding new benefits Making modest adjustments to existing benefits Voluntarily adopting new consumer protections under the new law Making changes to comply with state or other federal laws Significant cutting or reducing benefits Raising co-insurance charges Significantly raising co-payment charges Significantly raising deductibles Significantly reducing employer contributions Adding or Tightening an annual limit on what the insurer pays Cannot change insurance companies 27

31. Impact on Individuals Healthcare Exchanges Penalty for Uninsured Premium Tax Credits Medical Expense Deductions New Medicare Taxes 28

32. Healthcare Exchanges (2014) Created to provide insurance to the following: Employees not offered by employer Unemployed Self-employed Small Business < 100 employees Retired individuals <65 Years old Employees in group employer planwho meets one of the following: Employee costs exceeds 9.8% of household income Large employer does not pay at least 60% of premiums Large employer does not provide minimum essential coverage However, the regulations allow for any legal resident to participate, as long as they are a resident of the state 29

33. Healthcare Exchanges By 2014, each state is required to have Healthcare Exchanges Exchanges foster employment flexibility and competition 1-4% estimated savings (Greater participants spreads the risk) The plans will have ratings of Bronze (60%), Silver (70%), Gold (80%), and Platinum (90%) 30

34. Penalty for Uninsured (2014) Greater of: 1% to 2.5% penalty beginning in 2014 On income over filing threshold Calculated on a monthly basis $95 – 695 applicable dollar amount penalty Adjusted for cost of living after 2016 Maximum to 3x applicable dollar amount for a family Exceptions to the Penalty Unaffordable coverage > 8% income One short lapse per year 3months or less Enforcement has “no teeth” 31

35. Premium Tax Credits (2014) Refundable credit Lesser of: Monthly premium at exchange or Premium of 2nd lowest silver plan minus 2-9.5% of income The credit limits premiums to 2% of income at federal poverty level (FPL) to 9.5% of income at 300-400% of FPL Can be claimed as a credit on return or can be paid directly to the insurance company Specific requirements for eligibility (similar to slide 27) Seeking insurance thru an exchange Have income between 100% - 400% of poverty line $88,200 family of 4 = 400% of poverty line 32

36. Premium Tax Credit Examples A family of four makes $22,000 (100% of FPL). Their insurance premiums are $5,000 annually. They would have to pay $440 ($22,000 X 2%). The remaining $4,560 would be paid using the premium tax credit, assuming that the insurance is the 2nd cheapest silver plan. Assuming the same family makes $44,000 (200% of FPL). Assuming their insurance premiums are the same and that they are choosing the 2nd cheapest silver plan, the would have to pay $2,772 ($44,000 X 6.3%). The remaining $2,228 would be paid using the premium assistance credit. 33

37. Medical Expense Deduction (2013) The itemized deduction will be raised to 10% from 7.5% Takes effect for everyone under the age of 65 in 2013 Takes effect for everyone including people 65 and older in 2017 34

38. Healthcare Surtax (2013) Levels that are considered high income $200,000 – Individual/Head of Household $250,000 – Married Filing Jointly $125,000 – Married Filing Separately $11,200 – Trusts/Estates 2 Components .9% new tax on earned income 3.8% on investment income Includes Interest, Dividends, Capital Gains, Annuities, Royalties, Rents, Passive Activity Income 35

39. Medicare Surtax Tax on investment income Exclusion Items Municipal Bond income Retirement distributions Growth in annuities Life Insurance Capital Gain on sale of active trade/business Planning Strategies Accelerate income into 2010 Roth Conversions Take dividends from C-corps in 2010 Installment sales Deferred compensation – contributions to 401(k) Surtax Bubble From IRA Distributions 36

40. Examples Sarah & Scott, married filing jointly, have $200,000 of salaries and $150,000 of net investment income for a total MAGI of $350,000. The 3.8% surtax would apply to $100,000 of income. Randy, a single taxpayer, age 69, has investment income of $200,000 and is not subject to the surtax. In the following year, Randy has a RMD for his IRA of $125,000, with the same amount of investment income. Now $125,000 of his income is subject to the surtax. 37

41. Surtax Bubble 38

43. $200,000 Investment account

44. Tax due paid with outside funds

45. 6% pre-tax growth and 4.8% after tax growth39

46. Timeline 40

47. 3330 W. Esplanade Ave. Suite 100 Metairie, LA 70002 (504) 838-9991 41

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