On March 23, 2010, President Obama signed the health care reform package approved by the House of Representatives.
The Patient Protection Act (December 24, 2009), as amended by the House Reconciliation Act (passed on March 21, 2010), does not impose the income tax surtax on higher-income individuals originally proposed in the House last year. However, the House health-care package would impose an additional Medicare tax on higher-income individuals (not scheduled to start until 2013), including a Medicare tax on investment income, an addition to changing aspects of the excise tax to be imposed on high-dollar insurance plans. And while the health-care package does not mandate employer-provided coverage, it does include "play or pay" language.
The IRS would be responsible for overseeing a significant part of health care reform, such as the adminstration of additional taxes on individuals and employers, determinations of various exemptions from those taxes, and oversight of new information reporting requirements. Many of the new requirements have phased-in or delayed effective dates, giving the IRS - and taxpayers - a window of time to prepare.
Individuals who currently have coverage and wish to retain that coverage may at least try to do so under a "grandfather" provision in the health care package and the coverage will be deemed to meet the individual's responsibility to have health coverage. A similar grandfather provision applies to employers that currently offer coverage.
The Patient Protection Act, as amended by the House Reconciliation Act, requires most individuals not otherwise eligible for Medicaid or Medicare or other government-sponsored coverage to maintain a minimum essential coverage beginning after 2013. Individuals who fail to maintain minimum essential coverage would be liable for a penalty.
|
Year
|
Penalty
|
Percent of Income*
|
|
2014
|
$95
|
1.0%
|
|
2015
|
$325
|
2.0%
|
|
2016
|
$695**
|
2.5%
|
|
*In lieu of the flat penalty if greater
|
|
** Indexed for inflation after 2016.
|
For individuals under the age of 18, the applicable flat dollar penalty would be one-half of the above amounts.
The flat dollar penalty on any taxpayer for any tax year with respect to all individuals for whom the taxpayer is liable (generally family members) cannot exceed an amount equal to 300% of the applicable dollar amount for the year.
The Act exempts taxpayers below the threshold for filing an income tax return from the minimum essential coverage penalty.
The Act also provides premium assistance tax credits and reduced cost sharing to qualified individuals, on a sliding scale. The credit is designed to guarantee that qualified individuals would not spend more than a specific percentage of their income on medical insurance premiums. Generally, these individuals who cannot afford minimum essential coverage based on the relationship of their income to the federal poverty level. The healh care package allows for the advanced payment of premium assitance tax credits.
The Act includes a religioius conscience exception, excludes undocumented individuals in the U.S from coverage and provides special rules for qualified members of Native American tribes, certain hardship cases, dependents and incarcerated individuals.
The IRS would be responsible for determining eligibility for the premium assistance tax credit. Further, premium assistance tax credits would be disregarded for federal or federally-assisted programs.
The Act does not require employers to provide health insurance coverage. However, "large" employers that do not provide minimum essential coverage will be liable for an additional tax; "small" employers will be encouraged to provide coverage through an available tax credit. The Act also requires automatic enrollment in health insurance plans sponsored by large and mid-size employers. "Large" employers are deemed those with 50 or more full-time employees. The additional tax mentioned above would be equal the product of the applicable payment amount (1/12 of $2,000) and the number of full-time employees employed by the employer during such month.
The health care package also caps health FSA contributions at $2,500 per year after 2012, which is indexed annually for inflation after 2013.
The Act also increases the additional tax on nonqualified distributions from HSAs from 10% to 20% and from Archer MSAs from 15% to 20%.
The Act also raises the threshold for the itemized medical expense deduction from 7.5% of Adjusted Gross Income to 10% of Adjusted Gross Income for regular income tax purposes effective tax years beginning after December 31, 2012.
