APRIL, 2010
This issue contains the following articles:
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Health Care Reform Legislation Process
The recently signed health care legislation has an official name, but you probably think of it simply as health care reform. And now that it's law, you may be wondering what tax changes are in store.
Here's a recap of some rules included in the two health care bills that will affect your individual and business tax returns.
BUSINESS TAX CREDIT. Starting this year, a new federal tax credit is available when you provide health care insurance for qualified workers. In general, the credit applies when you have no more than 25 employees earning average wages of $50,000 or less. The maximum credit is 35% of the premiums you pay.
ADOPTION CREDIT. For 2010, you'll be able to claim an increased adoption credit on your personal return. The credit is increased by $1,000 (to $13,170) and is refundable. Also, the credit is extended through 2011.
CHANGES TO HEALTH SAVINGS PLANS. In 2011, over-the-counter medications will no longer be considered qualified medical expenses for health savings plans such as HSAs, FSAs, and HRAs. Also, penalties for nonqualified withdrawals will increase. The maximum contribution you can make to FSAs will be limited to $2,500 starting in 2013.
INCREASED MEDICARE TAX. A two-part change affects individual tax returns in 2013.
If you're married, filing jointly, and have income of more than $250,000 ($200,000 when you're single), a 3.8% Medicare tax may be assessed on your unearned income. Unearned income includes dividends, interest, royalties, and rents.
In addition, when your earned income is greater than $250,000 (for married filing jointly) a .9% increase in Medicare tax will apply. The income threshold is $200,000 when you're single.
MODIFICATION OF MEDICAL EXPENSE ITEMIZED DEDUCTION. Starting in 2013, in order to claim an itemized deduction on your personal return when you're under age 65, your unreimbursed medical expenses will need to exceed 10% of your adjusted gross income. The current threshold is 7.5%.
PENALTIES FOR NOT PROVIDING HEALTH CARE TO EMPLOYEES. A penalty for failure to provide minimum essential health coverage to your employees takes effect in 2014. The penalty applies when you have 50 or more full-time employees.
We'll be providing more information on these and other tax provisions in the health care reform legislation. In the meantime, if you have any questions about how the bill applies to you or your business, please call.
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HIRE Act Has Tax Breaks For Businesses
The "Hiring Incentives to Restore Employment Act" (HIRE Act) was signed into law by President Obama on March 18, 2010. The law includes temporary tax breaks for businesses that hire workers who have been unemployed for at least 60 days, and it extends for one year the higher expensing limit for business equipment purchases.
HIRING INCENTIVES. The HIRE Act provides $13 billion in tax incentives to private businesses that hire unemployed workers. Employers can receive an exemption from social security payroll taxes for every qualified worker hired after February 3, 2010, and before January 1, 2011. For new hires kept on the payroll for at least 52 weeks, employers may qualify for a tax credit for each retained worker of the lesser of $1,000 or 6.2% of wages paid during the 52-week period.
The payroll tax forgiveness provided in the law does not apply to the Medicare portion of the tax. Also, the new employee cannot displace a current employee unless that employee quit or was fired for cause. Relatives of the employer are not considered qualified employees for these tax breaks.
INCREASED EXPENSING LIMITS. The 2009 maximum amount that could be expensed for the purchase of new or used business equipment was $250,000, with a dollar-for-dollar reduction once total equipment purchases for the year exceeded $800,000. The expensing limit fell to $134,000 for 2010, with phase-out set at $530,000. The HIRE Act retroactively reinstates the higher 2009 expensing limits for 2010. This is a one-year extension only, and it does not include an extension of bonus depreciation allowed last year. Off-the-shelf computer software will continue to qualify for expensing for 2010 purchases.
The HIRE Act does not extend the business and individual tax breaks that expired at the end of 2009; nor does it extend COBRA premium assistance. These provisions are addressed in other bills under consideration by Congress. |
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Please contact us if you would like additional information or would like to discuss any of the enclosed information in further detail.
Sincerely,
Burkhardt & Co. |
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