Significant 2013 & 2014 Business Tax Implications Of Health Care Reform

by Chris Doolittle  on Monday, Sep. 10, 2012 12:00 am  

Chris DoolittleBKD LLP

The Supreme Court upheld President Obama’s health care overhaul, holding that it is constitutional in substantially all respects. The ruling further confirms that major changes are coming as a result of the Patient Protection & Affordable Care Act and the Health Care & Education Tax Credits Reconciliation Act of 2010. The acts have tax and penalty implications for not only individuals, but for businesses as well.

When the reform became law in 2010, many of the changes seemed far in the future; some don’t take effect until 2018. For this reason, the majority of small businesses have delayed the development of related strategy and planning. It is now time to prepare for the changes that take effect in 2013 and 2014.

Additional W-2 Reporting Requirements

Generally, employers who filed 250 or more Form W-2s for 2011, filed in January of 2012, will be required to disclose the value of employer-provided health insurance coverage as an informational item on each employee’s W-2.

Implications and Potential Penalty: Employers should consider what is required to be reported and adjust payroll systems to accurately track this information. A penalty of anywhere from $30 to $100 per Form W-2 may be imposed for failure to file correct information returns. The IRS website has more information on its website.

Additional Medicare Tax on Earned Income

Beginning in 2013, an additional 0.9 percent medical hospital insurance tax is due on earned income in excess of certain limits for individuals. Employers will be required to withhold the additional percentage on individuals with compensation in excess of $200,000.

Implications and Potential Penalty: Employers will not be liable for any additional Medicare tax that they fail to withhold and that the employee later pays. However, employers will be responsible for any penalties resulting from their failure to withhold, so they should communicate with employees and make appropriate payroll system adjustments prior to 2013.

Flexible Spending Account Limit

Prior to 2013, there was no government-mandated limit related to Flexible Spending Account contributions, though a $5,000 limit has become common for many employers. In 2013, the contribution limit will be $2,500, with inflation adjustments going forward. In addition, non-prescribed, over-the-counter medications are no longer eligible for reimbursement.

Implications and Potential Penalty: Employers may adopt the required amendments to reflect the $2,500 limit at any time through the end of 2014. Failing to adopt the new provisions could result in employers offering a nonqualified benefit and terminating cafeteria plan status, thereby converting tax-free benefits to taxable benefits.

Small Employer Health Insurance Credit



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