More PPACA Surprise Tax Bills

By Don McAnelly, CPA/ABV/CGMA
Rehmann

June 2013 – Are you starting to at least begin to understand some of the financial or tax ramifications of PPACA? Well if you answered, no…fear not, you are likely in the majority. Below are a few common Question and Answers relative to some of the Act’s aspects that are coming to light regarding some of the unknown tax impacts that will impact both businesses and individuals.

A business may be wondering, ‘What is the significance of a non-deductible excise tax to my business?’

By now, many of you may know that if you are a ‘Large Employer’ (which, while more complex than the following statement, being a large employer generally means you have more than 50 FTEs), that you either must offer an employer sponsored health insurance plan that is Affordable and provides Minimally Essential Benefits or your business may face having to pay certain excise taxes. But that is not where the tax costs end.

This excise tax paid will be ‘non-deductible’ for business tax purposes. This non-deductibility will in effect serve to compound the impact of its payment on a business’s bottom line, in that not only will the organization incur the initial payment of the excise tax, but come tax time, they will be paying additional income tax on the amount of the excise tax due to it not being a qualifying deductible expense. This is a complex situation, and as such, it is recommended that you discuss this in greater detail with a professional advisor that understands your particular circumstances. But, suffice it to say, the tax cost of not offering an employer sponsored plan will be more than just the cost of the associated excise tax.

An individual may ask, ‘I’m an employee of a business that is looking to increase the costs it charges for the coverages to me as an employee, therefore, I am interested into looking at what the premium subsidies could mean to me. What are some of the initial things I need to know regarding whether I will qualify?’

The first consideration in determining if you may be eligible to receive a subsidy is your current access to coverage. If your employer offers a health plan (that covers at least 60% of claim costs and costs no more than 9.5% of you annual income) or you qualify for public coverage (such as Medicaid, military, etc.) you do not qualify for the subsidy.
Additionally, your annual income must not exceed 400% of the federal poverty level.

If I qualify for and receive the subsidy, are there any tax considerations I should be aware of?

These subsidies will be structured as an advance and refundable credit through an individual’s personal tax filing. This is important due to the timing of these events. For instance, let’s assume that in January 2014, you receive a subsidy to help pay your health insurance premiums. The amount of the subsidy, being based on your projected annual income for the year, is based merely on an estimate. Perhaps you or your spouse gets a job or a new job or a raise at your current position during the year that puts you in a different subsidy bracket, or disqualifies you for the subsidy entirely. In this case, come tax time in April of 2015, you may find yourself in a less desirable tax situation than you might have been anticipating due to having to pay all or a portion of that subsidy back to the government.

Will accepting a Premium Tax credit or cost sharing subsidy affect my taxes in any other way?

Once again, due to the complexities of the Tax Code, our simple answer is that ‘it depends.” In the case of self-employed individuals, absent any future legislation, there would most likely be no change on your personal tax return. On the other hand, if you are an employed individual and are accustomed to itemizing deductions in lieu of the standard deduction, this could impact your ability to itemize deductions on your tax return. This is due to the subsidy reducing your out of pocket medical expenses. It should also be mentioned that beginning in 2013, taxpayers under the age of 65 (by the end of 2013) will have an increased threshold for deducting medical expenses. The deductible amount of medical expenses will now be limited to those costs exceeding 10% of your adjusted gross income rather than the 7.5% we’ve had in prior years. This same increased threshold will affect taxpayers ages 65 and older (by the end of 2013) beginning in the 2016 tax year.

Due to every company and every individual’s circumstances varying so greatly, we advise you to consider these key points, and address your questions and concerns with your trusted CPA advisor.

With extensive experience providing financial solutions to clients – from business operation & efficiency assessments to consulting & corporate tax guidance – Don McAnelly is ideally positioned to provide the support today’s businesses need. Don serves as Rehmann’s primary CPA contact for health care clients in East Michigan and his experience extends to tax, valuation and financial matters. Don has been with Rehmann for 18 years, with prior Big Five national accounting firm experience. Additionally, he is a member of the Michigan Association of CPAs, has authored overviews on the Patient Protection and Affordable Care Act for the Firm’s BWD magazine and has spoken on the Act to various chambers of commerce.