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Dear Business Clients -
We are writing to summarize the most significant changes taking place this year, impacting businesses and their owners, as a result of the implementation of the Affordable Care Act (ACA). Generally speaking, employers who want to provide health insurance to their employees need to provide group type health plans rather than individual type health plans, in order to be in compliance with the ACA.
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1. Employer Reimbursements of Individual Policy Premiums
Effective in 2014 employers are precluded from subsidizing or reimbursing employees for individual health insurance premiums on a pre-tax basis.
- However, an employer can provide an ACA approved group health plan, or alternatively treat any reimbursements of premiums for individual health insurance policies as taxable (payroll and income) compensation to their employees.
- A small employer (50 or fewer employees) can continue offering a Section 125 "Cafeteria Plan" to its employees, so they can pay for their share of the health insurance plan on a pre-tax basis, if the employer provides a group insurance plan to its employees.
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2. S Corporation Shareholders
As in prior years, shareholders of S Corporations should continue to have their company pay their health insurance premiums, either directly to the health insurance provider, or by means of a reimbursement of the shareholder's premium cost; however beginning in 2014 the reporting of these premium payments will now be payroll taxable.
- Therefore in addition to the premiums being reported as wages on the shareholder's W-2, the premiums will also be reported as FICA and Medicare taxable. The good news is that the premiums will continue to be deductible by the shareholder on their individual tax returns, as an adjustment to income, as in the past.
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3. HSA Plans
Health savings plans are still allowed under the new law, as long as the health plan offered by the employer is a high deductible qualifying plan, and as long as any contributions made by the employer to the employees' accounts are non-discriminatory.
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4. Employer Tax Deductibility
Sole proprietors, LLC members, partners and shareholders are still eligible to claim a Federal income tax deduction for premiums paid for their own coverage, as long as they follow the new reporting guidelines as detailed above for S corporation shareholders, by including the premiums paid as compensation subject to income and payroll taxes.
- The same is true for partners in partnerships and members in LLC's, in that as long as the premiums are included in the partners or members compensation, then the cost of the premiums are deductible by the partner or member on their individual tax return, as in the past.
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5. Marketplace Premium Subsidies
Beginning in 2014 lower and middle income individuals who purchased their health insurance through the marketplace, whether Federal or State, are receiving premium subsidies, reducing the cost of the premium to the insured.
- This advanced credit will be reconciled on the individual's 2014 income tax return, at which time the taxpayer will either receive a refundable credit, or pay an additional premium tax, depending on how the taxpayer's projected income at the start of the policy year compares with actual income received through the end of the policy year.
- A premium subsidy is not available to an individual who is either eligible for employer provided health insurance coverage, or participates in other employer provided minimum essential care offerings.
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Conclusion
This newsletter is intended to summarize some of the more important aspects of the ACA relative to you and your business, however please contact us if you'd like to discuss how these new rules and reporting requirements impact you and your company in particular, in order to make sure that you are in compliance.
Very Truly Yours,
Wittenberg CPA, PS
360-426-0230
www.WittenbergCPA.com
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