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All Affected By Tax Changes
Increases of as much as $400B would touch every individual and business in U.S.
AUGUST 2010
As published in the Mississippi Business Journal
The federal Patient Protection and Affordable Care Act, known as the universal health coverage mandate, represents the most significant social legislation enacted in decades. It's estimated this act contains over $400 billion in tax increases that have the potential to affect all individuals and businesses in the U.S.
Eustis Corrigan, a tax specialist with the HORNE accounting firm in Jackson, says many business owners may not be aware of what's involved with this mandate. "This mandate affects business owners of all sizes in some form. However, it is likely that only the larger businesses with the resources to actively follow legislation of this nature are up-to-date," he said. "Essentially all businesses and individuals will be affected in some way by these changes."
He explains that individuals earning over $200,000, or $250,000 for married couples filing jointly, will be affected more than other individuals by these changes due to the additional Medicare tax and the surtax on unearned income. Large businesses - that is employers with at least 50 full-time employees - could be substantially affected, and these large businesses must follow the new coverage requirements or they could be subjected to high penalties.
Corrigan summarized the most significant tax provisions relating to the health coverage mandate. "Beginning this year, there is a new temporary, sliding-scale tax credit equal to 35 percent of the amount paid for employees' health coverage available for qualified small business employers with 25 full-time employees or less," he said. "Employers with 10 or fewer employees and average annual wages of less than $25,000 would be eligible for the full credit."
Furthermore, the act provides for the expansion of dependent coverage in employer health plans. Effective this year, a dependent child of an employee who is under age 27 at the end of the year would be eligible for coverage under an employer's plan. There is an additional Medicare tax for high-income employees that begins in 2013, which means the Medicare tax rate will be increased by .9 percent on individuals earning more than $200,000 or $250,000 for married couples filing jointly.
"Beginning in 2013, there will be a new surtax on unearned income - a 3.8 percent surtax called the Unearned Income Medicare Contribution will be imposed on net investment income of individuals, estates or trusts with income over $200,000 or $250,000 for a joint return," Corrigan said. "Net investment income includes interest, dividends, royalties, rents, gross income from a trade or business involving passive activities and net gain from disposition of property, other than property held in a trade or business."
Another provision requires enhanced reporting requirements for nonprofit hospitals that is effective for taxable years beginning after March 23, 2010. "At that time, non-profit hospitals will be required to adopt written financial assistance policies," he said. "For taxable years beginning after March 23, 2012, non-profit hospitals will be required to conduct periodic community health needs assessments."
Also, the legislation adds certain consumer protection provisions to debt collection activities by non-profit hospitals, and the Internal Revenue Service would be required to review a non-profit hospital's community benefit activities at least once every three years.
It's not too early for business owners and individuals to begin preparing for these changes. "Although some of the provisions do not go into effect for three to four years from now or longer, it is never too early to begin planning or implementing for this kind of change," Corrigan said. "We are making sure our clients are aware of the provisions of the law that could cause financial hardships such as increased penalties or additional taxes.
"Others provisions may not have a direct financial impact, but provisions such as increased 1099 reporting or W-2 reporting will likely impose substantial compliance costs. The earlier our clients become familiar with the changes, the more prepared they will be financially as well as logistically for anything that may affect them."
