Obamacare...What do I do?!

First...breath.  Everything will be OK.  Provided below is a summarized version of what you will need to know for the 2014 tax season:

Beginning in 2014, all taxpayers were responsible for obtaining health insurance by March 31 for themselves and their dependents.

Therefore there are 3 general scenarios taxpayers may find themselves in.

1.  You had health insurance not purchased through Healthcare.gov ("The Exchange")

Inform your tax preparer of that fact and your work is over.  If you have dependents that file their own taxes, your tax preparer needs copies of those before yours can be completed. Some people may receive a new form called Form 1095 from their insurance company.  Bring this with you if one is received.

2.  You had health insurance purchased through Healthcare.gov ("The Exchange")

You will receive a Form 1095-A in the mail before February.  Bring this to your tax preparer.  If you have dependents that file their own taxes, your tax preparer will need copies of those before yours can be completed.

3.  You did not have health insurance

There may be a penalty that applies for non coverage.  Certain exemptions are available to avoid paying a penalty.

     Examples of Situations Exempt from Penalty
- Covered through Medicare or Medicaid
- Receive insurance through Retirement Systems
- You did not earn enough income
- You qualify for a Hardship Exemption (listed here https://www.healthcare.gov/fees-exemptions/hardship-exemptions/ )

At Debreczeni and Petrash we are fully prepared to take care of taxpayers, no matter the category they fall in.  If you are currently a client, rest assured that we will guide you through this process.  If you are not currently a client please visit www.Debreczeni-Petrash.com or call (440) 230-5660 and see if we are a good fit for your needs.

Are you eligible for any of these tax credits? Don't forget!

Millions of Americans forgo critical refunds each year by failing to claim for tax credits. 
visit www.debreczeni-petrash.com for more info

Are you eligible for any of these tax credits?

Worthwhile Knowledge

A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes. Below are some of the credits taxpayers could be eligible to claim:

Earned Income Tax Credit
(EITC) is a federal tax credit for individuals who work but do not earn high incomes. Last year, an estimated 21 million taxpayers received approximately $37.5 billion in EITC. However, the IRS estimates that 25 percent of people who qualify don't claim the credit! When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. For more information, see IRS Publication 596, Earned Income Credit (EIC).

Child Tax Credit 
This credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see Pub. 972, Child Tax Credit.

Child and Dependent Care Credit 
This is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work. There is a limit to the amount of qualifying expenses.

Retirement Savings Contribution Credit 
Eligible individuals may be able to claim a credit for a percentage of their qualified retirement savings contributions, such as contributions to a traditional or Roth IRA or salary reduction contributions to a SEP or SIMPLE plan. To be eligible, you must be at least age 18 at the end of the year and not a student or an individual for whom someone else claims a personal exemption. For more information, see chapter four in Publication 590, Individual Retirement Arrangements (IRAs).

Education Credits 
There are two credits available, the American Opportunity Credit (formerly called the Hope Credit) and the Lifetime Learning Credit, for people who pay higher education costs. The American Opportunity Credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. A taxpayer cannot claim both credits for the same student in one year.

Adoption Credit 
Adoptive parents can take a tax credit of up to $13,170 for qualifying expenses paid to adopt an eligible child. For more information, see Pub. 968, Tax Benefits for Adoption.

Credit for the Elderly and Disabled 
This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are citizens or residents. For more information, see Pub.524, Credit for the Elderly or the Disabled.


There are other credits available to eligible taxpayers.  Please contact us so we may realize your specific situation, and offer advice. www.Debreczeni-Petrash.com

Tips for Donating to Charity Safely

It is common for scam artists to impersonate charities to get money or private information from taxpayers. The IRS has offered a number of tips for taxpayers to follow in making donations:

1. Donate to recognized charities to help disaster victims. Scammers operating bogus charities may contact people by telephone, social media, email or in-person to solicit money or financial information.

2. Scammers often send e-mail that steers the recipient to bogus websites that appear to be affiliated with legitimate charitable causes.

3. Be wary of charities with names that are similar to nationally known organizations. Fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities to persuade people to send money or provide personal financial information.

4. Consider using the search feature, "Exempt Organizations Select Check," on the IRS website, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.

5. Don't give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. This information may be used by scam artists to steal your identity and money.

6. Don't give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Let Debreczeni & Petrash help keep your donations safe

When to Start Receiving Social Security Benefits

As you approach retirement age, you must decide whether to begin taking reduced social security benefits early or wait until full benefit retirement age (FBRA). In many cases, this decision will depend on factors other than trying to receive the greatest lifetime benefit from social security. 

Remember that while you have the option of receiving social security benefits as early as age 62, the eligibility age for Medicare remains at 65. So, although you may be able to replace a sufficient amount of your earned income with social security benefits beginning at age 62, you may not be able to adequately replace your employer-provided health insurance.

Even if you have sufficient funds to live on without considering social security, many people prefer to begin receiving benefits as soon as possible. For 2013, the benefits at age 62 are reduced by 25% of what they would be at age 66 (i.e., the FBRA); but, you will receive more social security checks if benefits are drawn early. In addition, drawing early social security benefits may allow you to leave tax-deferred retirement accounts untouched and growing for longer periods.

Another reason to receive benefits early is if you have children living at home. Children under age 18 (or up to 19 if a full-time student) may be eligible for benefits if you are also receiving social security benefits.

You might carefully consider the long-lasting advantages of waiting until FBRA based on the following factors.

Life Expectancy. Your life expectancy may be the biggest factor in deciding whether to receive benefits early. By age 62, you should have a good handle on your own life expectancy based on your current health and the longevity of your parents. In general, 77 years might be a good cutoff point. If you reasonably expect to reach that age, waiting until FBRA may be a wise choice.

Shortening the Retirement Period. A significant factor in retirement planning projections is the length of the retirement period. For example, if you want to retire at age 62 and you have a life expectancy of 85, you have a 23-year retirement period to fund. By working past age 62, you are shortening the retirement period and lowering the amount of money needed to fund your retirement regardless of longevity.

The Earnings Test. If you are considering receiving retirement benefits before your FBRA but you intend to keep working, you must consider the earnings test. For 2013, social security benefits are reduced $1 for every $2 in earnings above the exempt amount of $15,120.

Replacing Lower-wage Years. Your social security benefits are calculated based on your highest 35 years of indexed earnings. If you can replace lower-wage years early in your career with higher-wage years after age 62, the benefit can be increased. This can lead to a greater benefit when you retire.

Inflation Adjustments. Social security benefits receive an annual inflation adjustment. By taking early benefits, your starting base for these annual adjustments is smaller. For example, if your benefit was $1,000, but you retired early and received only $750, each year you would miss out on the compounded inflation adjustment of that $250 in lost benefits. In other words, the gap between the early retirement benefit you receive and the amount you would have received by waiting will get bigger and bigger.

The Effect on Your Spouse. Your decision to start receiving social security benefits before reaching FBRA may also affect your spouse’s benefits. If your spouse does not have a personal earnings record, he or she will only receive half of your retirement benefit.

After FBRA. If you delay receiving benefits until after your FBRA, you will receive larger benefits because of the delayed retirement credit. You may receive a credit of up to 8% per year for each year you delay receiving benefits until age 70.

If you are able to wait, the delayed retirement credit can have a significant impact. In addition to the higher retirement benefit you will receive, you will also shorten your retirement period and increase your spouse’s survivor’s benefit.

Residency Issues for Retirees and Home Office Deductions

Debreczeni-Petrash.com

Residency Issues for Retirees With 10,000 baby boomers turning 65 each day, some may decide to move to another state for a variety of reasons. These include living in a warmer climate, being closer to children or other relatives, avoiding state income tax, health reasons, or a combination thereof. But, states and municipalities are looking for every available dollar to shore up shrinking budgets. So retirees should use caution to avoid being overtaxed due to a move. If the retiree's move is intended to be permanent, it is important that legal domicile be established in the new state. If domicile is not established, the retiree may be subject to income tax as a resident of both the old and new states. In addition, since each state has its own rules relating to residence and domicile, both states may try to impose taxes on the retiree even if he or she has established domicile in the new state, but has not adequately relinquished domicile in the previous state. Furthermore, if the retiree dies without establishing domicile, both the old and the new states may claim jurisdiction over the retiree's estate. The more time that elapses after the move and the more steps the retiree takes to establish domicile in the new state, the more difficult it will be for the old state to assert that the retiree resides or has domicile there. The following steps tend to establish domicile in a new state: Register to vote in the new location. File a change of address form with the post office at the old location and change the address on documents, such as tax returns, wills, contracts, insurance policies, passports, and living trust agreements. Obtain a driver's license and register automobiles in the new location. Open and use bank accounts in the new location. Move items from safe deposit boxes in the old location to the new location. Purchase or lease a residence in the new state and sell the residence in the old state. If an income tax return is required, file a resident return in the new state and a nonresident return (or no return, if appropriate) in the old state. File for property tax relief under a homestead exemption (if any) in the new state. For many purposes, the location of property is determined by reference to state law, and legally may be deemed to be somewhere other than where the property is physically located. The state in which the property is deemed to be located may assess income taxes (if any) on income or gains relating to the property. The state may also assess death and succession taxes, and that state will be where probate proceedings will occur when the individual dies. Furthermore, rules of that state will be used to determine whether testamentary instruments are valid and whether the terms of the instruments (such as the powers of a trustee) are legally enforceable. The retiree's state of domicile generally determines the rules relating to the ownership and tax treatment of intangible personal property. Thus, if the retiree established domicile in a new state, that state's laws generally will apply to his or her intangible assets, such as bank accounts, stocks, bonds, notes, partnership interests, trust income rights, and insurance contracts. Interest income from a savings account, for example, will normally be taxed by the state of domicile, rather than the state in which the account is located. New Simplified Home Office Deduction The IRS recently announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes. The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and record-keeping burden on small businesses. The new option is available beginning in 2013. Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A, if they choose to itemize their deductions. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, can still be fully deductible. Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option. In tax year 2010, the most recent year for which figures are available, the IRS indicates nearly 3.4 million taxpayers claimed deductions for business use of a home. Please contact us if you would like more information on the home office deduction or any other tax compliance or planning issue. For More Information Please Visit Debreczeni-Petrash.com

Save Taxes When Paying Health Care Costs

There are four types of tax-advantaged accounts that can be used to pay for unreimbursed medical expenses: (1) Health Care Flexible Spending Accounts (FSAs), (2) Health Reimbursement Accounts (HRAs), (3) Health Savings Accounts (HSAs), and (4) Archer Medical Savings Accounts (MSAs). 

Comparison of the four types of accounts 

FSAs. These are employer-established arrangements that are usually funded through salary reduction agreements. The employee's contribution isn't subject to either income or employment taxes. Under the ACA, beginning in 2013, FSA contributions are limited to $2,500 per employee. 

HRAs. These are employer-established arrangements that are funded only through employer contributions. HRA contributions are not subject to either income or employment taxes and health care benefits used for medical care are tax exempt. 

HRAs are group health plans that typically consist of a promise by an employer to reimburse medical expenses for a year up to a certain amount, with unused amounts available to reimburse medical expenses in future years. That causes a problem under Sec. 2711 of the Public Health Service Act (PHSA), as added by the ACA, which generally prohibits plans and issuers from imposing lifetime or annual limits on the dollar value of essential health benefits. IRS has ruled that HRAs are permitted when they are integrated with other employer-provided coverage, and are not permitted when they are stand-alone accounts. 

HSAs. These are tax-exempt accounts that can be established (and to which contributions can be made) only when the account owner has a qualifying high deductible health insurance plan (HDHP). For example, for 2013 as well as 2014, the plan must have a deductible of at least $1,250 for self-only coverage and $2,500 for family coverage.

For 2013, annual out-of-pocket expenses (deductibles, co-pays, and other amounts, but not premiums) can't exceed $6,250 for self-only coverage or $12,500 for family coverage (for 2014, $6,350 and $12,700 respectively). The plan holder may have no other major medical health insurance policy. Contributions made by employers are exempt from income and employment taxes, and account owners may deduct contributions they make. Withdrawals for medical expenses are not taxed. Unused balances may be carried over from year to year. Contributions for 2013 are limited to $3,250 for self-only coverage and $6,450 for family coverage (for 2014, $3,300 and $6,550 respectively). An additional contribution of $1,000 is allowed to people age 55 and older.

MSAs. These accounts, also known as Archer MSAs, are earlier versions of HSAs and are in limited use under current law. MSAs can be established generally only when account owners have qualifying high deductible insurance and no other coverage. Contributions made by employers are exempt from income and employment taxes, and contributions by account owners (which are allowed only if the employer doesn't contribute) are deductible. Withdrawals are not taxed if used for medical expenses. Unused balances may be carried over from year to year without limit.

The principal difference between HSAs and MSAs is that MSA eligibility is limited to people who are self-employed or employed by a small employer (50 or fewer employees, on average). In addition, the MSA minimum deductible levels are higher and the contribution limits are lower. Generally, no MSAs can be created after Dec. 31, 2007, although MSAs existing at that time are grandfathered. 

National statistics

40% of all civilian workers in 2012 had access to a health care FSA. When viewed by firm size, 53% of civilian workers in firms with 100 or more workers had access to an FSA. In establishments with fewer than 100 employees, 20% of the workers had access to a health care FSA.

HSAs are only available to employees who have HDHPs. In 2012, 26% of firms offering health benefits offered an HSA-qualified HDHP (up from 18% in 2011 and 12% in 2010). Workers in larger firms were more likely to have access to an HDHP than those in smaller firms.

Although employers are not required to restrict HRA benefits to employees with HDHPs, most employers chose to do so. Of employers offering health benefits, there was no discernible upward or downward trend in the percent who offered an HDHP and an HRA in recent years; the percentage was 4% in 2010, 7% in 2011, and 5% in 2012.

The CRS report says that almost no data is available on usage of MSAs, as very few new MSAs are being created, and the number of them always has been limited.

Tax Highlights Obamacare

Posted Wednesday, July 04, 2012

HIGHLIGHTS OF PPACA/HCERA AND IRS GUIDANCE The Supreme Court has left standing all tax provisions within PPACA and HCERA. This decision, which was unexpected by many Court-watchers, brings with it a sense of urgency to employers, individuals and other stakeholders that time is now g rowing short both to prepare for those major changes soon to take place in 2013 and 2014 and also to implement provisions or benefits that are already effective and available. The PPACA and HCERA add to or amend numerous sections of the Internal Revenue Code, resulting in the largest set of tax law changes in more than 20 years. The IRS has been working on many fronts to issue guidance on these provisions, to flesh out certain benefits and requirements, and to set up procedures necessary for compliance. The remainder of this Briefing highlights the major tax provisions of PPACA and HCERA, and the guidance that has been developed since enactment. INDIVIDUAL TAX PROVISIONS Individual Mandate The PPACA requires applicable individuals to carry minimum essential health coverage for themselves and their dependents (also known as the individual mandate) or otherwise pay a shared responsibility penalty for each month of noncompliance. The individual mandate provision is scheduled to be effective beginning in calendar year 2014. "The individual mandate requires most Americans to maintain ‘minimum essential’ health insurance coverage," Chief Justice Roberts wrote. "For individuals who are not exempt and do not receive health insurance through a third party, the means of satisfying the requirement is to purchase insurance from a private company." Individuals who are exempt. Some individuals are exempt from the individual mandate. They include (not an exhaustive list) individuals covered by Medicaid and Medicare, incarcerated individuals, individuals not lawfully present in the United States, health care ministry members, members of an Indian tribe, and members of a religion conscientiously opposed to accepting benefits. No penalty will be imposed on individuals without coverage for fewer than 90 days (with only one period of 90 days allowed in a year). Generally, individuals with employer-provided health insurance, if it satisfies minimum essential coverage and affordability requirements, are also exempt. Additionally, no penalty will be imposed on individuals who are unable to afford coverage (generally, an individual will be treated as unable to afford coverage if the required contribution for employer-sponsored coverage or a bronze-level plan on an Exchange exceeds eight percent of the individual's household income for the tax year). Those applicable individuals whose household income is below their income thresholds for filing income tax returns are also exempt. Minimum essential coverage. Under the PPACA, minimum essential coverage generally includes (not an exhaustive list) coverage under an eligible employer-sponsored plan, an individual market plan, a grandfathered health plan (discussed below), coverage under Medicaid and Medicare, and other government-sponsored coverage, subject to some exceptions. Calculating the penalty. The penalty is generally calculated by taking the greater of a flat dollar amount and a calculation based on a percentage of the taxpayer's household income, and is imposed on a monthly basis (one-twelfth per month of this ‘greater of ’ amount). The annual flat dollar amount is assessed per individual or dependent without coverage and is scheduled to be phased in over three years ($95 for 2014; $325 for 2015; and $695 in 2016 and subsequent years, indexed for inflation after 2016; onehalf of these amounts for individuals under the age of 18). The flat dollar amount is compared to a percentage of the extent to which the taxpayer's household income exceeds the income tax filing threshold. The applicable percentage is 1 percent for 2014, 2 percent for 2015, and 2.5 percent for 2016 and subsequent years. The taxpayer's penalty is equal to the greater of the flat dollar amount or the percentage of household income. The amount cannot exceed the national average of the annual premiums of a "bronze level" health insurance plan offered through a health exchange. Premium Assistance Tax Credit Beginning in 2014, eligible lower-income individuals who obtain coverage under a qualified health plan through an insurance exchange may qualify for a premium assistance tax credit under Code Sec. 36B unless they are eligible for other minimum essential coverage, including employer-sponsored coverage that is affordable and provides minimum value. The PPACA provides that advance payments of the premium assistance tax credit may be made directly to the insurer. Medical Deduction Threshold The PPACA increases the threshold to claim an itemized deduction for unreimbursed medical expenses from 7.5 percent of adjusted gross income (AGI) to 10 percent of AGI for tax years beginning after December 31, 2012. However, individuals (or their spouses) age 65 and older before the close of the tax year are exempt from the increased threshold, and the 7.5 percent threshold continues to apply until after 2016. HEALTH CARE TAX CREDIT The Health Care Tax Credit (HCTC) was extended and enhanced by the Trade Adjustment Assistance Act of 2011 (TAA 2011). The HCTC is refundable and can also be advanced. Individuals eligible for the HCTC include individuals receiving Trade Adjustment Allowances; individuals receiving wage subsidies in the form of Reemployment Trade Adjustment Assistance (RTAA) benefits; and individuals between the ages of 55 and 64 receiving payments from the Pension Benefit Guaranty Corporation (PBGC). The HCTC is scheduled to sunset after 2013. Additional Tax On HSA/MSA Distributions Distributions from a health savings account (HSA) or Archer medical savings account (Archer MSA) not used for the beneficiary's qualified medical expenses are generally included in the beneficiary's gross income. Distributions included in gross income are subject to an additional tax of 10 percent of the included amount, unless made after the beneficiary's death, disability, or attainment of the age of Medicare eligibility. Effective for distributions made after December 31, 2010, the additional tax on HSAs and Archer MSAs increases from 10 percent to 20 percent, in the case of HSAs, and from 15 percent to 20 percent, in the case of Archer MSAs, of the amount included in gross income. Additional Medicare Tax For tax years beginning after December 31, 2012, an additional 0.9 percent Medicare tax is imposed on wages and self-employment income of higher-income individuals. The additional Medicare tax applies to individuals with remuneration in excess of $200,000; married couples filing a joint return with incomes in excess of $250,000; and married couples filing separate returns with incomes in excess of $125,000. Medicare Tax On Investment Income The PPACA imposes a 3.8 percent Medicare contribution tax on unearned income effective for tax years beginning after December 31, 2012. The tax is imposed on the lesser of an individual's net investment income for the tax year or modified adjusted gross income in excess of $200,000 ($250,000 for married couples filing a joint return and $125,000 for married couples filing a separate return). Net investment income is the excess of the sum of the following items less any otherwise allowable deductions properly allocable to such income or gain: - Gross income from interest, dividends, annuities, royalties and rents unless such income is derived in the ordinary course of any trade or business (excluding a passive activity or financial instruments/commodities trading); - Other gross income from any passive trade or business; and - Net gain included in computing taxable income that is attributable to the disposition of property other than property held in any trade or business that is not a passive trade or business. Indoor Tanning Excise Tax Amounts paid for indoor tanning services performed after June 30, 2010, are subject to a 10 percent excise tax. Tanning salons are responsible for collecting the excise tax and paying over the tax on a quarterly basis. Tanning salons that fail to collect the tax from patrons are liable for the excise tax. Dependent Coverage Until Age 26 The PPACA also requires group health plans and health insurance issuers providing dependent coverage for children to continue to make the coverage available for an adult child until turning age 26. The coverage requirement is effective for the first plan year beginning on or after September 23, 2010. The IRS issued temporary regulations in TD 9482 (5/10/10). The IRS explained that, with respect to a child who has not attained age 26, a plan or issuer may not define dependent for purposes of eligibility for dependent coverage for children other than in terms of a relationship between a child and the participant. A plan or issuer may not deny or restrict coverage for a child who has not attained age 26 based on the presence or absence of the child's financial dependency (upon the participant or any other person), residency with the participant or with any other person, student status, employment, or any combination of those factors. Medical Benefits For Children Under 27 The PPACA amended Code Sec. 105(b) to extend the exclusion from gross income for medical care reimbursements under an employer-provided accident or health plan to any employee's child who has not attained age 27 as of the end of the tax year. The amendment was effective March 30, 2010. The IRS issued guidance in Notice 2010-38, which explains that the exclusion applies for reimbursements for health care of individuals who are not age 27 or older at any time during the tax year. The tax year is the employee's tax year (generally a calendar year). The IRS also explained that a child for purposes of the extended exclusion is an individual who is the son, daughter, stepson, or stepdaughter of the employee. A child includes an adopted individual and an eligible foster child. IMPACT. There is no requirement that a child generally qualify as a dependent for tax purposes. There is also no requirement that an employer provide this coverage (as opposed to dependent coverage under age 26, described above). Student Loan Repayment Programs The PPACA provides for exclusion of assistance provided to participants in state student loan repayment programs for health professionals. The assistance is intended to increase the availability of health care in areas traditionally underserved by health professionals. BUSINESS TAX PROVISIONS Shared Responsibility For Employers The PPACA's employer shared responsibility provisions (also known as the "employer mandate") specify that an applicable large employer may be subject to a shared responsibility payment (also known as an "assessable payment") if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment. Generally, this may occur where either: - The employer does not offer to its fulltime employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; or - The employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that either is unaffordable relative to an employee's household income or does not provide minimum value (that pays at least 60 percent of benefits). COMMENT The provision applies to months beginning after December 31, 2013. For purposes of the employer shared responsibility payment, an applicable large employer is an employer that on average employed 50 or more full-time equivalent employees on business days during the preceding calendar year. A full-time employee is an employee who is employed on average at least 30 hours per week. EXCHANGES The PPACA requires each state to establish an American Health Benefit Exchange and Small Business Health Options Program (SHOP Exchange) to provide qualified individuals and qualified small business employers access to health plans. Exchanges will have four levels of coverage: bronze, silver, gold, or platinum. In early 2012, HHS reported that 34 states and the District of Columbia have received grants to fund their progress toward building Exchanges. HHS also provided an Exchange blueprint that states may use. If a state decides not to operate an Exchange for its residents, HHS will operate a federally-facilitated Exchange (FFE). Small Employer Health Insurance Tax Credit The PPACA created the temporary Code Sec. 45R small employer health insurance tax credit. For tax years 2010 through 2013, the maximum credit is 35 percent of health insurance premiums paid by small business employers (25 percent for small taxexempt employers). The credit is scheduled to increase to 50 percent for small business employers (35 percent for small tax-exempt employers) after 2013 (but will terminate after 2015). However, in tax years that begin after 2013, an employer must participate in an insurance exchange in order to claim the credit, and other modifications and restrictions on the credit apply. In Notice 2010-44, the IRS provided guidance on the small employer health insurance tax credit, including transition relief for tax years beginning in 2010 with respect to the requirements for a qualifying arrangement. The IRS expanded on the guidance in Notice 2010-82. The IRS explained in Notice 2010-82 that a qualified employer must have: - Fewer than 25 full-time equivalent employees (FTEs) for the tax year; - Average annual wages of its employees for the year of less than $50,000 per FTE; and - A "qualifying arrangement" that is maintained. Exchange-Participating Qualified Health Plans Offered Through Cafeteria Plans For tax years beginning after December 31, 2013, a cafeteria plan cannot offer a qualified health plan offered through an American Health Benefit Exchange. Health FSAs Offered In Cafeteria Plans Effective for tax years beginning after December 31, 2012, the PPACA limits contributions to health flexible spending arrangements (health FSAs) to $2,500, down from an overall $5,000 FSA limit. The $2,500 limitation is adjusted annually for inflation for tax years beginning after December 31, 2013. Over-the-Counter Medicines The PPACA revises the definition of medical expenses for health flexible spending arrangements (health FSAs), health reimbursement arrangements (HRAs), health savings accounts (HSAs) and Archer Medical Savings Accounts (Archer MSAs). After December 31, 2010, expenses incurred for a medicine or drug are treated as a reimbursement for a medical expense only if the medicine or drug is a prescribed drug or insulin Retiree Prescription Drug Subsidy The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 provides a subsidy of 28 percent of covered prescription drug costs to employers that sponsor group health plans with drug benefits to retirees. PPACA requires the amount otherwise allowable as a business deduction for retiree prescription drug costs to be reduced by the amount of the excludable subsidy-payments received, effective for tax years beginning after December 31, 2012. Limitation on Employee Remuneration The PPACA limits the allowable deduction to $500,000 for applicable individual remuneration and deferred deduction remuneration attributable to services performed by applicable individuals that is otherwise deductible by a covered health insurance provider in taxable years beginning after December 31, 2012. In Notice 2011-2, the IRS explained that the provision may affect deferred compensation attributable to services performed in a tax year beginning after December 31, 2009. The IRS also provided a de minimis rule. Medical Device Excise Tax The PPACA imposes an excise tax on the sale of certain medical devices by the manufacturer, producer, or importer of the device in an amount equal to 2.3 percent of the sale price. The excise tax applies to sales of taxable medical devices after December 31, 2012. Retail exemption. The PPACA exempts certain devices from the excise tax, such as eyeglasses, contact lenses and hearing aids. In the proposed regulations, the IRS provided a facts and circumstances approach to evaluating whether a taxable medical device is of a type that is generally purchased by the general public at retail for individual use. A device is considered to be of a type generally purchased by the general public at retail for individual use if (i) the device is regularly available for purchase and use by individual consumers who are not medical professionals, and (ii) the device's design demonstrates that it is not primarily intended for use in a medical institution or office, or by medical professionals. Credit For Therapeutic Discovery Projects Eligible taxpayers may qualify for a 50-percent tax credit for investments in therapeutic discovery projects. The PPACA also established the qualifying therapeutic discovery project program to consider and award certifications for qualified investments eligible for the credit. The credit was available for qualified investments made or to be made in 2009 and 2010. Additionally, the PPACA provides for grants in lieu of tax credits for investments in therapeutic discovery projects. REPORTING Forms W-2 The PPACA generally requires employers to disclose the aggregate cost of applicable employer-sponsored coverage on an employee's Form W-2 for tax years beginning on or after January 1, 2011. Reporting is for informational purposes only. In Notice 2010-69, the IRS made reporting optional for all employers for 2011. In Notice 2012-9, the IRS provided transition relief for small employers. For 2012 Forms W-2 (and W-2s issued in later years, unless and until further guidance is issued), an employer is not subject to reporting for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year, the IRS explained. Health Care Coverage Reporting The PPACA requires every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs and other entity that provides minimum essential coverage to file an annual return reporting information for each individual for whom minimum essential coverage is provided (Code Sec. 6055 reporting). Additionally, every applicable large employer (within the meaning of Code Sec. 4980H(c)(2)) that is required to meet the shared employer responsibility requirements of the PPACA during a calendar year must file a return with the IRS reporting the terms and conditions of the health care coverage provided to the employer's full-time employees for the year (Code Sec. 6056 reporting). The reporting requirements apply to calendar years beginning on or after January 1, 2014. Disclosures Because the PPACA is being implemented by multiple federal agencies, the statute authorizes the IRS to disclose return information to HHS and other agencies. Return information is scheduled to be disclosed for, among other purposes, eligibility for the Code Sec. 36B premium assistance tax credit. In NPRM REG-119632-11, the IRS explained that it will disclose taxpayer identity information, filing status, the number of individuals for which a deduction under Code Sec. 151 was allowed ("family size"), modified adjusted gross income, and the tax year to which the information relates or, alternatively, that the information is not available. Where modified adjusted gross income is not available, the IRS will disclose adjusted gross income. Nonprofit Health Insurance Issuers The PPACA establishes the Consumer Operated and Oriented Plan (CO-OP) Program. The CO-OP Program is intended to encourage the creation of qualified nonprofit health insurance issuers to offer competitive health plans in the individual and small group markets. The PPACA also enacted Code Sec. 501(c)(29) to provide requirements for tax exemption under Code Sec. 501(a) for qualified nonprofit health insurance issuers (QNHIIs). Tax-Exempt Charitable Hospitals The PPACA imposes additional requirements on Code Sec. 501(c)(3) charitable hospitals. Tax-exempt hospitals must conduct a community health needs assessment (CHNA) and adopt a financial assistance policy. The PPACA also places limitations on charges to individuals who qualify for financial assistance and prohibits certain collection actions. Tax-exempt hospitals must satisfy these additional requirements to maintain their exempt status. ADDITIONAL PROVISIONS Grandfathered Plans Certain plans or coverage existing as of March 23, 2010 (the date of enactment of the PPACA) are subject to only some provisions of the PPACA. These plans are known as "grandfathered plans." The IRS, HHS and DOL issued interim final regulations in 2010 and subsequently amended the interim final regulations (TD 9506). The agencies explained that a group health plan or group or individual health insurance coverage is a grandfathered health plan with respect to individuals enrolled on March 23, 2010 regardless of whether an individual later renews the coverage. Additionally, a group health plan that provided coverage on March 23, 2010 generally is also a grandfathered health plan with respect to new employees (whether newly hired or newly enrolled) and their families that enroll in the grandfathered health plan after March 23, 2010. Patient's Bill Of Rights The PPACA generally provides that a group health plan and a health insurance issuer offering group or individual health insurance coverage may not impose any preexisting condition exclusion. The PPACA also prohibits group health plans and health insurance issuers offering group or individual health insurance coverage from imposing lifetime or annual limits on the dollar value of health benefits. Additionally, a group health plan, or a health insurance issuer offering group or individual health insurance coverage, must not rescind coverage except in the case of fraud or an intentional misrepresentation of a material fact. COMMENT A group health plan or group health insurance coverage must comply with the prohibition against preexisting condition exclusions; however, a grandfathered health plan that is individual health insurance coverage is not required to comply with the prohibition. The IRS, HHS and DOL issued interim final regulations in 2010. The agencies explained that the prohibition against preexisting condition exclusions generally is effective with respect to plan years (in the individual market, policy years) beginning on or after January 1, 2014. However, the prohibition became effective for enrollees who are under 19 years of age for plan years (in the individual market, policy years) beginning on or after September 23, 2010. The agencies also explained that the annual limits do not apply to health flexible spending accounts (health FSAs), Archer medical savings accounts (Archer MSAs) and health savings accounts (HSAs); and plans and issuers cannot rescind coverage unless an individual was involved in fraud or made an intentional misrepresentation of material fact. Business Information Reporting The PPACA requires businesses, charities and government entities to file an information return (Form 1099) when they would make annual purchases aggregating $600 or more to a single vendor, other than to a vendor that is a tax-exempt organization, for payments made after December 31, 2011 and reported in 2013 and years thereafter. The PPACA also repealed the long-standing reporting exception for payments made to corporations. The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 repealed the expansion of business information reporting under the PPACA as if it had never been enacted. Yours sincerely, www.debreczeni-petrash.comDebreczeni & Petrash CPAs