Health Care Reform In 2014

This is a big year for health care reform, also known as “Obamacare”. Here is general information about some of the major changes affecting businesses and individuals. We are happy to provide more detailed information to clients.

INDIVIDUALS

Must Have Health Coverage or Pay a Penalty
Starting with 2014, individuals pay a penalty with their federal tax returns if they can afford health insurance and don’t get it. The size of the penalty depends on the number of months the taxpayer went without care, the taxpayer’s income and the cost of health insurance.

Subsidies Available
Many individuals will qualify for free coverage through government programs. Those with too much income to qualify for free coverage may qualify for subsidies that will reduce the cost of insurance. To learn if you qualify for free or subsidized coverage, and to choose from available plans for individuals, visit healthcare.gov. A taxpayer can choose to receive the subsidy as a tax refund or, instead, for the subsidy to be paid to her insurer, thus lowering the monthly cost of insurance.

Limit on Tax Deductions and FSAs
Previously, taxpayers who itemize deductions could claim medical expenses in excess of 7.5% of their Adjusted Gross Income (AGI). Starting with 2014, the threshold is 10% of AGI.

Many employers offer a so-called Flexible Spending Account, or FSA. With an FSA, an employee can choose to divert some of his pay check into an account that can be used to pay medical expenses. Contributions to an FSA are tax deductible. Starting with 2014, the most a worker can contribute each year to an FSA is $2,500. The limit used to be $5,000.

BUSINESSES

Exchanges Provide Plans for Small Businesses
Businesses with no more than 50 employees can purchase health plans for their workers at healthcare.gov through the so-called SHOP marketplace. Some states run their own exchanges for health plans; the healthcare.gov site will route you to the proper site.

Subsidies Available for Business
If your small business employs fewer than 25 full-time equivalent employees making an average of no more than about $50,000, the business may qualify for valuable tax credits that will help pay for health coverage for its workers. The smaller the business, the higher the credits. Owner-employees do not count toward the 25-employee ceiling or the upper limit on average pay. Credits are only available if the business buys its plan through the SHOP marketplace. To qualify for credits, the business must pay at least a minimum amount towards the cost of coverage. Credits will be available for two years only.

Penalties for Larger Businesses Who Don’t Provide Care
Business with more than 50 full-time equivalent employees must provide affordable coverage to their workers or pay penalties. The penalties will apply starting in 2015 to the largest businesses; to mid-size employers in 2016. Smaller business will not be subject to these penalties.

SIMPLE Cafeteria Plans for Small Employers Reduce Cost of Coverage
Employees can pay all or part of the cost of health insurance through pre-tax payroll deductions. Such arrangements are sometimes called “cafeteria plans”. Tax deductions benefit both the worker and the employer, whose payroll taxes are also reduced when employees participate. Generally, owner-employees and highly-compensated workers cannot be included in such arrangements; only rank and file workers are eligible. But a new provision changes that for businesses with no more than 100 employees where the business pays at least part of the cost of coverage. S corporation and partnership owners are likely still excluded.