How are reporting provisions changing for businesses offering health care coverage?
Beginning in 2011, businesses must disclose the cost of benefits provided to employees on the employees’ annual W-2 forms, but this does not impact the tax-free treatment of employer-provided health coverage.
Businesses making payments of $600 or more per year to a corporate or noncorporate provider must report those payments on IRS information returns beginning in 2012.
Effective Jan. 1, 2014, coverage information must be reported to the IRS, including the number of individual employees, the number of months covered, the coverage type and the amount of premiums paid. Penalties will be assessed should a company fail to file as required.
Finally, if a company has 200 or more full-time employees, it will be required to automatically enroll them in the employer’s plan and notify them in writing of their right to opt out or enroll in another plan. They must also provide employees with a notice describing the availability of services provided by the American Health Benefit Exchange.
What tax credits are associated with the Acts to help offset the impact on employers?
The Small Employer Tax Credit allows businesses with 25 or fewer full-time equivalent employees a credit of up to 35 percent of premiums in 2010, increasing to 50 percent on Jan. 1, 2014. To qualify, a business must cover at least 50 percent of the cost of health care coverage based on the single rate. The credit begins to phase out if a company’s employees have average wages of $25,000 a year and disappears entirely when average wages are $50,000 or more.
Employers can use Form 8941 to calculate the credit and include the amount of the credit as part of the general business credit on their income tax returns. The credit can only be used to offset regular tax liability and does not apply to Alternative Minimum Tax.
Small businesses may be eligible for grants if they have fewer than 100 employees who work more than 25 hours a week and the business does not currently offer a wellness program. These small businesses can apply to the Secretary of the Health and Human Services Department for a portion of the $200 million appropriated that will be available for five years starting in 2011.
How will the Acts impact individuals?
By 2014, all individuals will be required to maintain health insurance or pay a penalty, which will be phased in over three years. By 2016, those without insurance will be subject to a penalty that equals the greater of $695 or 2.5 percent of gross income.
In addition, a Medicare tax will be imposed on the investment income of high-income families, and itemized deductions for medical expenses will be subjected to an increased floor.
Business owners should ‘stay tuned’ for developments, plan ahead to minimize the impact to their business and cost structure, and educate themselves and their employees. Although costs are anticipated to rise in the near term, an informed business owner can better meet the challenge.
William Sammons is the Atlanta managing partner at Nichols, Cauley & Associates. Reach him at (404) 214-1301 or [email protected].