Health care reform news, and the ever-present talk of delays, has created confusion for employers and employees alike, but they still must consider certain tax issues for 2013 and 2014.
“There’s so much information, you might ask yourself, ‘Where do I turn?’” says Kimberly Flett, CPA, QPA, QKA, director of retirement plan services at SS&G.
Beyond starting with the major federal governmental agencies — the IRS, Department of Labor (DOL) and Department of Health and Human Services (HHS) — for the rules, employers need a team of well-informed advisers.
“A plan sponsor’s burden is to make sure that they have the right players,” she says.
Smart Business spoke with Flett about tax implications of health care reform that everyone needs to know.
What do taxpayers need to know for their 2013 taxes?
High wage earners — a $250,000 threshold for married filing jointly, $125,000 for married filing separately and $200,000 for all other taxpayers — must pay a Medicare tax of an additional 0.9 percent, for a total tax of 2.35 percent. Those with $200,000 or more of income had this tax withheld at the payroll level during the year, but it doesn’t take into account spousal income. As you get your tax information together, review your W-2 to ensure payroll withheld enough, and work with your tax adviser to determine if adjustments are needed on Form 1040.
A second Medicare tax of 3.8 percent will be assessed on net investment income of high wage earners, which includes gross income from interest dividends, royalties, rents and annuities; other gross income derived from a trade or business; and gain attributable to the disposition of property. This applies to many business owners who need to make sure they’ve kept good records for their tax advisers.
Another change is with the itemized deductions on Schedule A of Form 1040. The medical expense deduction increases from 7.5 to 10 percent for those under 65.
Is the individual mandate still going ahead?
The individual mandate is still going into effect for 2014 taxes, on an individual’s Form 1040, with few exemptions. Those without health insurance coverage will pay a penalty based on the household, so a taxpayer could be paying penalties for dependents as well. The 2014 penalty is the greater of either $95 or 1 percent of modified adjusted gross income. Over time, the $95 increases to $695.
What’s crucial for employers to understand about the upcoming year?
There’s a lot of confusion surrounding the Patient Centered Outcomes Research Institute (PCORI) fee, which helps pay for the Affordable Care Act. If your company sponsors a fully insured health plan, the carrier was required to pay $1 per covered life by July 31. An additional fee of $2 per covered life is due by July 31, 2014.
However, if your company self-funds its health plan, it was required to pay the PCORI fee in July. Many businesses missed this, and therefore need to talk to their tax advisers immediately. Although guidance is still evolving, the IRS may assess penalties.
If your company has a health reimbursement arrangement (HRA) or flexible spending account (FSA) that’s not affiliated with a medical program, it’s considered self-funded and could be subject to PCORI fees for employees. Again, many employers missed these fees.
Other areas to watch are:
- FSAs have been capped at $2,500, but an employer sponsoring one of those plans must have all document amendments related to this in place by the end of 2014.
- Self-funded health plan sponsors must pay a reinsurance fee — $63 times the covered lives — by the end of 2014. A head count is due to HHS by Nov. 15, 2014.
- The employer mandate may have been delayed, but 2014 is the time to plan. Start realizing how you can count your employees, and fulfill the requirements.
Finally, the DOL is now auditing health and welfare plans. They are looking to see if medical plans, HRAs and FSAs all have updated Summary Plan Descriptions. They also are checking on notice requirements, such as the Summary of Benefits and Coverage given to employees. This has been a highly unregulated area, but the DOL is starting to be active — and companies are coming under scrutiny. ●
Kimberly Flett, CPA, QPA, QKA, is director of retirement plan services at SS&G. Reach her at (330) 668-9696 or [email protected].
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