Joel Flinchbaugh

1. Presented By: Joel Flinchbaugh, CPA
Smith Elliott Kearns & Company LLC

2.  March 2010, Congress passed the Patient
Protection and Affordable Care Act and the
Health Care and Education Reconciliation Act
of 2010
 Estimated cost - $940 billion over 10 years
 Expand coverage to 32 million Americans

3.  Changes for Business
◦ Summary of benefits
◦ W-2 reporting
◦ FSA limits
◦ Medical Loss Ratio rebate
◦ Minimum Essential Coverage
 Tax Impacts to Individuals
◦ Increased Medicare Taxes
◦ Surtax on Unearned Income
◦ Medical Expense Deduction
◦ Health Insurance Requirement
◦ Premium Assistance Credit

5. ◦ Uniform summary of benefits and coverage
explanations in plain language
◦ Must be provided at plan renewal on or after
9/23/12
◦ Revised summary of changes must be given 60 days
prior to effective date
◦ Penalty of up to $1,000 per failure to provide

6.  Cost of employer sponsored coverage must
be reported on employee’s W-2 beginning
with the 2012 tax year.
 Employer’s issuing less than 250 W-2’s exempt until
2013
 Reporting is for information purposes only
 Do not have to provide for individuals who would not
otherwise get a W-2 (retiree, Cobra)
 Penalty for failure to comply (up to $250,000 per year)

7.  Effective 1/1/2013 max election for
employee is $2,500
◦ No previous federal mandated limit
 Plan documents must be amended by
12/31/2014

8.  Insurers required to spend so much of
premiums on claims-excess refunded to
employer
 Employer must distribute rebates to
participants in some way…
 Distribute to enrollees/improve benefits/reduce future
employee contributions
 Allocation amongst participants must be fair and
reasonable
 Must be used within 3 months of receiving

9.  In 2014-Employers with 50 or more
employees who DO NOT offer health
coverage…
 Must offer insurance to full-time employees or pay a
penalty
 Fine is $2,000 per employee, but first 30 employees
are not counted….so with 65 employees penalty is only
paid on 35 of them

10.  Employer with 50 or more employees who
DOES offer health coverage…but has at least
one Full time employee receiving a tax credit
in the exchange will pay the lesser of…
 $3,000 for each employee receiving a credit or $2,000
for each full time employee
 An individual with family income up to 400% of federal
poverty level is eligible for credit if:
 The value of employer coverage is less than minimum
standard (does not cover 60% of costs) or...
 The employer requires employee to contribute more than
9.5% of employee’s family income toward coverage

12.  Current Social Security Taxes:
◦ 6.2% (4.2% in 2012) to a maximum $110,100 for
OASDI (old age survivor disability insurance)
and
◦ 1.45% on all wages for Medicare (HI)
 Withheld from wages; employer matches
 Self-employed pay both shares; receive
deduction for ½ of tax on 1040

13.  2013—Medicare increases 0.9% for employee
only on wages over - $200,000
 For joint returns additional tax on joint
earned income in excess of $250,000.
 Self-Employment Tax increases to same
amount
 No increase in Self-Employment deduction
 May have to remit additional Medicare on
1040

14.  Also effective in 2013
 New 3.8% Surtax on investment income
 Calculated on the lesser of:
1. Net investment income OR the
2. Excess of taxpayers’ modified AGI over $200,000
($250,000 for MFJ)

15.  Interest
 Dividends
 Annuities
 Royalties
 Rent
 Capital Gains
 Passive income from business (limited
participation)

16.  Active business income
 Qualified retirement plan and IRA
distributions
 Self-employment income
 Tax-exempt interest
 Sale of principal residence

17.  Barack & Michelle, MFJ
 Salaries $280,000 + net interest income
$20,000 = AGI $300,000
 Taxed on lesser of:
1. Net investment =$20,000 OR
2. Excess of AGI over $250,000 =$50,000
Result
 $760= 3.8% surtax on $20,000

18.  Currently, medical expenses allowable if
GREATER than 7.5% of AGI
 2013, threshold increases to 10% of AGI
 Exception-Taxpayer or Spouse is or turns 65
during 2013-2016, 10% threshold is not
effective until 2017

19.  Taxpayer AGI of $100,000 receives no
deduction of unreimbursed medical costs
until those expenses exceed $7,500 for
2011-2012
 2013- medical expenses > $10,000 to be
deductible

20.  2014 & 2015 phase in period—penalty on
individuals who fail to maintain “minimum
essential coverage”
 Penalty: 2014 = greater of 1% of household
income OR $95 per uninsured
2015 = greater of 2% of household
income OR $325 per uninsured

21. In 2016, penalty is greater of:
2.5% of taxpayer’s household income
(In excess of filing threshold)
OR
$695 per uninsured adult plus half the amount per
child under 18.
Penalty has a cap of $2,085 per household

22. Individual must maintain minimum essential
health care coverage under:
 Medicare, Medicaid, TRICARE, veteran’s care
or other governmental programs
 Employer sponsored group plan
 Grandfathered health plan
 Any coverage recognized by Department of
Health & Human Services

23.  Health insurance premium exceeds 8% of
household income
 Income below 1040 filing threshold

24.  Penalty included on 1040
 IRS may not impose interest on late payment
 Not subject to criminal prosecution or
assessment
 IRS may not file a lien or levy property
◦ May reduce refund owed to taxpayer
 Penalty criticized as unconstitutional
◦ Supreme Court has ruled it is a tax and
constitutional
 Voluntary?????????????

25.  2014 - Refundable credit to cover cost of
premiums for health insurance purchased
through a state health exchange
 Credit based on income
 Individual pays plan difference of premium
and credit (credit goes directly to exchange)
 Low income individuals

26.  There are a lot of changes coming to the tax
system as a result of healthcare legislation
 Clarifications are coming almost continually
 Keep in contact with your professionals
(insurance agent, attorney, CPA)
 Good luck!!!

27. Joel Flinchbaugh, CPA
Smith Elliott Kearns & Company
Email: jflinchbaugh@sek.com
Phone: (717) 243-9104