The best piece of advice financial experts can offer about strategizing for the tax consequences of President Barack Obama’s sweeping new health care legislation is to stay tuned — many of the rules have yet to be written, and some experts speculate that everything could change in the months ahead as opponents attempt to tinker with what’s been approved.
“There are a lot more regulations to come, and right now I think there are more questions than answers,” said Larry Harrison, a Las Vegas insurance broker.
Certified public accountant Adam Hodson concurs, adding that the U.S. Supreme Court is expected to hear arguments this summer on whether Obama’s health care measure is constitutional.
“The issue is over whether this forces people to go out and buy a product,” Hodson said. “Some say it’s unconstitutional for the government to require people to buy something, in this case health insurance. But a lot of people are comparing it to state governments requiring people to have car insurance, which are made allowable under state constitutions.”
If the Patient Protection Affordable Care Act stands as currently written, companies will need to list the value of their health care plans on W2 forms issued to employees next year, just as Medicare and Social Security wages are posted.
But Harrison said one recent change would make many small-business owners happy — the threshold has increased on the number of employees a company can have if it must comply, meaning that companies with fewer than 250 employees won’t be affected by the new rules.
“It used to be that 50 W2 employees triggered this,” Harrison said. “But that was modified in December, and now it’s companies with 250 or more W2 employees.”
There are no tax consequences to individual employees, but there’s speculation that someday the value of a qualifying health plan could be counted as income to an employee and subject to federal income tax.
Harrison said the primary purpose of the legislation was to get more Americans covered by health insurance. The legislation had different pathways to get more people in the system, including expanding benefits, preventing companies from rejecting applicants with pre-existing conditions and extending the age children of parents with coverage can keep them on their plans.
But all of that comes at a cost.
“The intent of the bill is to lower costs, but no one has really seen that yet,” Harrison said. “Having a pre-existing condition insurance plan is a wonderful thing. Nevada was one of two states that didn’t have that mechanism.”
Hodson said the health care plan and insurance coverage were at political crossroads that have placed them in the center of debates, a volatile ingredient in a presidential election year.
“Unfortunately, there’s not a lot you can do right now,” he said. “I don’t see a lot of people going out and expanding their programs because they don’t understand some of the rules and a lot of changes have been proposed. You’re better off sitting on your hands and doing nothing. The public has seen all the changes that occurred in the ‘Cash for Clunkers’ program and on credits for new home buyers.”
But through it all, the Internal Revenue Service is still dispensing information for small businesses to apply for tax credits for the 2010 to 2013 calendar years.
A company with 25 or fewer full-time employees with an average income of $50,000 a year or less can qualify for a tax credit if it pays for at least half of an employee’s health insurance policy. Part-time employees are added up to reach a full-time equivalent figure.
The IRS directs business owners to Form 8941, which can help deliver a tax break of up to 35 percent.
Only premiums paid to a health insurance issuer, such as an insurance company or HMO, qualify for the credit. Vision and dental coverage also apply.
In the last quarter of last year, the IRS had an extensive education program, sending direct updates to tax software providers and emails to 2,000 agents and brokers to explain the details of the tax credit.
Hodson and Harrison are optimistic that the IRS and the Department of Health Services will have a similar campaign this year. Both suggest working with a tax professional to be assured of getting maximum credits.
“It usually comes down at the end of the year,” Hodson said. “And it takes about nine weeks for the IRS to reprogram things on their end.”