Key Tax Provisions of the New Health Care Bill

In my memory, there has been no bill passed by Congress that has been as politicized as the recently-passed health care reform package. With all of the emotionally-charged discussion and partisan rhetoric, it's been my experience that the actual facts of the bill are often lost. As a CPA, I am interested in the tax-related provisions of any new law. In this case, I am particularly interested because many of the goals of the law are expected to be financed by tax law changes.

Here is a list of some of the most relevant tax-related items in the new law. Please remember that because of the reconciliation process, some of these are still subject to change.

Provisions going into effect in 2010:

• Effective July 1, the law imposes a 10% excise tax on indoor tanning services.

Provisions going into effect in 2011:

• The law will increase the 'penalty'tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses from 10% to 20%.
• Employer W-2 reporting will be required for the value of health benefits.
• An annual fee will be imposed on manufacturers and importers of branded drugs. The fee will be $2.5 billion for 2011, and will increase annually.
• The law makes the definition of "qualified medical expenses" uniform for purposes of MSAs, HSAs, and itemized deductions.

Provisions going into effect in 2013:

• The law establishes a $500,000 deduction limitation on salaries for officers, employees, directors, and service providers of covered health insurance providers.
• The law limits health flexible spending arrangements in cafeteria plans to $2,500. Currently, there is no limit.
• A 2.3% excise tax will be imposed on manufacturers and importers of certain medical devices.
• The law raises the 7.5% AGI floor on medical expenses deduction to 10%.
• The new law increases payroll taxes on higher-earning taxpayers. It places an additional tax of 0.9% on earned income and 3.8% on investment income for taxpayers with AGI in excess of $200,000 (single) and $250,000 (married).

Provisions going into effect in 2014:

• The law imposes an annual fee on health insurance providers ($8 billion in 2014 and increasing each year thereafter). The fee for each provider will be based on their market share in 2013.
• There will be a $695 annual excise tax (i.e., penalty) on individuals without "essential health benefits coverage." In other words, if you choose not to carry health insurance, you will have to pay a penalty tax to IRS when you file your tax return.
• The law also provides for an excise tax (i.e., penalty) on employers who employ more than 50 workders and do not provide health insurance coverage to employees. There will be a requirement that employers report health insurance coverage to the IRS to avoid the penalty. The penalty will be $2,000 per employee who has to pay for self-coverage.

Provisions going into effect in 2018:

• The law will impose a 40% excise tax (i.e. penalty) on health coverage in excess of $10,200 for single people and$27,500 for family coverage. Increased thresholds of $1,650/$3,450 will apply for over age 55 retirees or certain high-risk professions. The tax will be levied at the insurer level and will be nondeductible for tax purposes.

There are many facets to this bill, and not all of them involve taxation. However, now you know how your taxes could be impacted by the passage of this law. Hopefully, this information can help you make an educated, informed decision about the bill.

--Dan Musick is the tax services partner for Cook & Associates, PLLC, a full-service public accounting firm with offices in San Marcos and San Antonio, TX.