Here we go again… another titillating installment of Translate That Bill! We are going to jump right in and talk about small business insurance tax credits.
Under the Affordable Care Act, small businesses who had less than 25 full-time employees (part-time employees count as half, go figure… lol), and paid each employee less than $50k, could claim a tax credit for their contribution to the monthly health insurance premiums of their staff. They must have a plan offered through the Small Business Health Options Marketplace and pay at least 50% of the premium for each employee. I have never employed anyone, but I can imagine this was a great help in offering insurance and having a benefit like that would encourage talent to come and stay with your company. Well, the section of the IRS code that covers this credit will no longer be applicable starting in 2020. Also, any health plan that covers abortion for any reason other than life of the mother will disqualify a small business, starting in 2018, from being eligible for the tax credit. This doesn’t mean that separate plans cannot be held for abortion coverage, it just will not be counted in calculating the credit.
Finally we get to some good news! The penalty under the Individual Mandate will be $0 starting in 2016. So if you did not maintain qualified health coverage for the entirety of last year, you will not be paying a penalty if this bill is passed and this clause makes it through to the final bill. Let’s face it, no one likes being told what to do (okay, most people don’t like it…) but when you have to pay a penalty for not being able to afford insurance, it’s kind of a slap in the face. Yes, someone I love was in that very boat last year… and the year before.
Large employers who do not offer health insurance or who do and still have employees that qualify for tax credits or cost-sharing will no longer be required to pay a penalty. This will take effect for the 2016 tax year as well. The excise tax on really expensive employer-sponsored health insurance will not be active for the years 2020-2024. The excise tax basically says that employers must pay a 40% tax on any amount over the predetermined acceptable limit of monthly premiums, but that won’t be around for a while if this clause makes it through.
Currently, anyone who has a Health Savings Account (or similarly, an Archer Medical Savings Account) is unable to use this savings account for non-prescription medicine. The American Health Care Act (AHCA) is taking that language out which would mean that if you need an expensive bottle of Mucinex or NyQuil (I pretty much keep them in business…) you would be able to purchase it with the funds that you put into that account. I really like this idea! If it is your money for healthcare, then you should be able to use it for your own health self-care. We are busy people and we often just need some cold medicine to get us through. We don’t want to pay a co-pay just so we can get cold medicine that is readily available on our grocery market shelf. That would be ridiculous. This will take effect at the beginning of next year.
If you use your health savings account for something that is not a qualified health expense, then instead of a 20% penalty, you would only pay 10% under the AHCA. The penalty for the same thing with an Archer Medical Savings Account would become 15% instead of 20%. This also is a good step to take. I get that they want people to use these accounts for their intended purpose but there is no need to take large chunks just to make a point. The AHCA will take away the limit on non-taxable contributions from an individual’s paycheck. The limit is currently $2500. These changes are scheduled to begin in 2018.
The 2.3% tax for makers and importers of medical devices (that you can’t buy in a retail store) is currently not in effect but it will be completely taken off the table in 2018.
Employers who provide drug coverage for their retirees will once again be entitled to deduct from their taxes the 28% rebate that they receive from Medicare for providing the coverage. People who have to pay for medical care not covered by insurance will now be able to deduct the part of those costs that exceed 7.5% of their adjusted gross income. It was 10% before, so lowering the percentage means you can deduct more of your out-of-pocket expenses.
On a small side note, a clause on page 89 of the AHCA changes language from “him” to “such individual.” I’m totally cool with the change… it just reminded me of another occasion where I noticed something similar…
Back to health care, the AHCA proposes a refundable health care credit as well. This tax credit will be determined by age and adjusted by income level to an extent as well. It is applied by numbers of months covered and not just a flat credit. If you are only covered for six months, you will only get half of the credit. To claim the credit, a joint return must be filed if you are married. Receiving a small employer health reimbursement will decrease the amount of your credit as well. This credit will not be applied for any plan that covers abortions other than to save the life of the mother. Yes, I know I have written that before, but it’s in there, so I am writing it… again…
A program will be created not later than 2020 to pay these credits in advance and directly to your health insurance provider. The limits of the credit based on age (which actually favors people as they age this time) and income level still apply to this advance payment program. Paying in advance, directly to the insurance provider always seems like a good idea. It takes more of the monthly financial burden off of the individual and will help prevent the desire to go out and buy that 65″ smart TV during tax season sales. Many of us know some young adults who would or have done just that, I am sure (I know I do!). If you have an excess of this credit, it will be deposited into a health savings account. If you or your spouse have “seriously delinquent tax debt,” no payment of the credit or excess of the credit will be made.
Health insurance providers can and may be required to provide updated/confirmed information to the government to include (but not limited to) names, addresses, premiums, amounts of advance payments, months of coverage, and whether it qualifies as a high deductible health plan. They will also be required to provide you with the information they provided not later than January 31st of the next year (the same as the W-2 deadline). Speaking of, your W-2, it would also report how many months you were eligible for employer-connected health care.
If you make a false claim to the health insurance credit, you will be required to pay a penalty equal to 25% of the amount of the refund or credit.
The limit on the amount you can deduct for contributing to your health savings account will be increased under the AHCA. Individuals that have coverage only for themselves will see an increase from a $2250 deduction to a $5000. Families covered by a health savings account can deduct $9000, exactly twice the previous amount. These increases would be effective starting for the 2018 tax year. The deductions for married couples can only be claimed for one family heath plan and the division of the deduction will be 50/50 unless they agree on something different. If you have a high deductible health plan and incur medical expenses before you start your health savings account, they can be paid as long as they are qualified expenses and your account was established within 60 days of starting your health insurance. This will also take effect in 2018.
THAT’S IT! There is no more!!! …Well… not until things are changed in the bill which I thoroughly expect to happen. When and if it does, I will do my very best to bring you those changes in plain(er) English once again!