Archive for Health Insurance

ObamaCare’s Health Insurance Premium Tax Credit Proposed Regulations

May 6, 2013 Affordable Care Act, Health Care Tax Credit, Health Insurance, ObamaCare

The Affordable Care Act or ObamaCare was passed almost three years ago with the goal of extending quality health insurance coverage to more Americans and it becomes fully effective January 1st 2014. To encourage compliance, the Act for all intents and purposes takes a carrot-and-stick approach as credits are offered for those who need financial help with buying insurance, and penalties are defined for those who do not get insurance. The Act’s core requirements are that most Americans must have health insurance and that all but small employers must offer insurance to full-time employees.

In other words if you are a U.S. citizen or legal resident you must have “minimum essential” health insurance coverage and your dependents must also be covered or risk being essentially penalized. Exemptions will be allowed for:

  • Financial hardship (standards will be defined by the Secretary of Health and Human Services)

  • Religious objections (applies only to certain faiths)

  • Members of American Indian tribes

  • Those uninsured for less than three months

  • Undocumented immigrants

  • Incarcerated individuals

  • Those for whom the lowest cost plan option exceeds 8% of income

  • Those with incomes below the tax filing threshold

I will be posting A LOT on this topic as it gets rolled out. Today’s post is merely an introduction and to inform you that the US Department of the Treasury just recently issued proposed regulations relating to the health insurance premium tax credit enacted by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 as amended by the Medicare and Medicaid Extenders Act of 2010, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, and the Department of Defense and Full-Year Continuing Appropriations Act of 2011.

A full set of posts will be dedicated to these proposed regulations as I decipher them and struggle to understand their ramifications. In the mean time check out:

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IRS Notice 2008-1 Health Insurance Costs of 2% Shareholder-Employees

March 7, 2013 Corporation, Health Insurance, Small Business, Social Security Tax, Sub-chapter S, Tax Guidance & Preparation

Under IRS Notice 2008-1, if you are an owner of more than 2% of an S corporation and you have a health insurance policy in your name with premiums paid by the corporation basically a plan has been established by the corporation for you the shareholder. This is not a self insured plan. It is simply health insurance premiums paid or furnished by an S corporation.

Also the premium payments are included in the wages for income tax withholding purposes on your Form W-2, but are not considered wages subject to social security and Medicare taxes if the requirements for exclusion under §3121(a)(2)(B) are satisfied meaning that medical or hospitalization expenses were incurred in connection with sickness or accident disability.

Currently there are no discrimination provisions under §106 dealing with contributions by employers to accident and health plans. As a shareholder you are allowed an exclusion from gross income for the insurance cost if you meet the requirements of §162(l) which states as follows:

“In the case of a taxpayer who is an employee within the meaning of section 401 (c)(1), there shall be allowed as a deduction under this section an amount equal to the amount paid during the taxable year for insurance which constitutes medical care for the taxpayer spouse or dependent children … No deduction shall be allowed under paragraph (1) to the extent that the amount of such deduction exceeds the taxpayer’s earned income (within the meaning of section 401 (c)) derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established.”

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Health Insurance Premium Tax Credit

February 28, 2013 Health Insurance

The IRS has issued final regulations, TD 9611, relating to the health insurance premium tax credit enacted by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. These final regulations provide guidance to individuals related to employees who may enroll in eligible employer-sponsored coverage and who wish to enroll in qualified health plans through Affordable Insurance Exchanges and claim the premium tax credit.

Also, the IRS has issued proposed regulations, REG-148500-12, relating to the requirement to maintain minimum essential coverage enacted. These proposed regulations provide guidance on the liability for the shared responsibility payment for not maintaining minimum essential coverage.

This document also provides notice of a public hearing on these proposed regulations.  The IRS has also provided a Individual Shared Responsibility FAQ sheet.

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Self Employed Health Insurance Insurance Deduction: Worksheet v. IRS Publication 535

October 25, 2012 Deductible Expense, Health Insurance, Partnership, Self Employ, Small Business, Sub-chapter S

If you qualify to take the deduction, use the Self-Employed Health Insurance Deduction Worksheet to figure the amount you can deduct. However use IRS Publication 535 instead if any of the following applies.

  • You had more than one source of income subject to self-employment tax.

  • You file Form 2555 or 2555-EZ.

  • You are using amounts paid for qualified long-term care insurance to figure the deduction.

According to IRS INSTRUCTIONS you may be able to deduct the amount you paid for health insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2011, even if the child was not your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child.

Self-Employed Health Insurance Deduction Worksheet

  • If, during 2011, you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation pension recipient, see the instructions for Form 8885 to figure the amount to enter on line 1 of this worksheet.

  • Be sure you have read the Exception in the instructions for this line to see if you can use this worksheet instead of Pub. 535 to figure your deduction.

1.

Enter the total amount paid in 2011 for health insurance coverage established under your business

(or the S corporation in which you were a more-than-2% shareholder) for 2011 for you, your spouse, and your dependents. Your insurance can also cover your child who was under age 27 at the end of 2011, even if the child was not your dependent. But do not include amounts for any month you were eligible to participate in an employer-sponsored health plan or amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer

1.

2.

Enter your net profit* and any other earned income** from the business under which the insurance plan is established, minus any deductions on Form 1040, lines 27 and 28. Do not include Conservation Reserve Program payments exempt from self-employment tax

2.

3.

Self-employed health insurance deduction. Enter the smaller of line 1 or line 2 here and on

Form 1040, line 29. Do not include this amount in figuring any medical expense deduction on Schedule A

3.

*If you used either optional method to figure your net earnings from self-employment, do not enter your net profit. Instead, enter the amount from Schedule SE, Section B, line 4b.

**Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. However, it does not include capital gain income. If you were a more-than-2% shareholder in the S corporation under which the insurance plan is established, earned income is your Medicare wages (box 5 of Form W-2) from that corporation.

One of the following statements must be true.

  • You were self-employed and had a net profit for the year.

  • You were a partner with net earnings from self-employment.

  • You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.

  • You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2.

The insurance plan must be established under your business. Your personal services must have been a material income-producing factor in the business. If you are filing Schedule C, C-EZ, or F, the policy can be either in your name or in the name of the business.

If you are a partner, the policy can be either in your name or in the name of the partnership. You can either pay the premiums yourself or your partnership can pay them and report them as guaranteed payments. If the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premiums as guaranteed payments.

If you are a more-than-2% shareholder in an S corporation, the policy can be either in your name or in the name of the S corporation. You can either pay the premiums yourself or the S corporation can pay them and report them as wages. If the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you. You can deduct the premiums only if the S corporation reports the premiums paid or reimbursed as wages in box 1 of your Form W-2 in 2011 and you also report the premium payments or reimbursements as wages on Form 1040, line 7.

But if you were also eligible to participate in any subsidized health plan maintained by your or your spouse’s employer for any month or part of a month in 2011, amounts paid for health insurance coverage for that month cannot be used to figure the deduction. Also, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2011, do not use amounts paid for coverage for that month to figure the deduction.

If you were eligible to participate in a subsidized health plan maintained by your spouse’s employer from September 30 through December 31, you cannot use amounts paid for health insurance coverage for September through December to figure your deduction.

Medicare premiums you voluntarily pay to obtain insurance that is similar to qualifying private health insurance can be used to figure the deduction. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.

If you qualify to take the deduction, use the Self-Employed Health Insurance Deduction Worksheet to figure the amount you can deduct. However use IRS Publication 535 instead of the Self-Employed Health Insurance Deduction Worksheet in these instructions to figure your deduction if any of the following applies.

  • You had more than one source of income subject to self-employment tax.

  • You file Form 2555 or 2555-EZ.

  • You are using amounts paid for qualified long-term care insurance to figure the deduction.

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IRS Forms 8941 + 3800 Calculating + Claiming Small Business Health Care Tax Credit

July 25, 2012 Health Care Tax Credit, Health Insurance, Self Employ, Small Business, Tax Credit

For tax years 2010 to 2013, the maximum credit for eligible small business employers under the Small Business Health Care Tax Credit is 35 percent of premiums paid and for eligible tax-exempt employers the maximum credit is 25 percent of premiums paid.  Beginning in 2014, the maximum credit will go up to 50 percent of qualifying premiums paid by eligible small business employers and 35 percent of qualifying premiums paid by eligible tax-exempt organizations.

Start by determining if your organization qualifies for the credit by assessing whether it has less than 25 full-time equivalent employees that earn an average wage of less than $50,000 a year and your organization pays at least half of employee health insurance premiums. If your organization meets this criteria it is referred to as a “qualifying business.” Next use IRS Form 8941 Credit for Small Employer Health Insurance Premiums. Last use IRS Form 3800, General Business Credit, to claim the credit.

Tax-exempt organizations can use IRS Form 8941 to calculate the credit and then claim the credit on IRS Form 990-T, Exempt Organization Business Income Tax Return.

If your organization couldn’t use the credit in 2011 there may be eligible to claim it in future years. Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

Also be sure to check out the IRS’ YouTube Video on the topic

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IRS Form 1040 Schedule C: Profit or Loss from Business

February 7, 2012 Accounting Method, Business Expense, Business Income, Car expense, Depreciation, Disallowed Expenses, Employee Business Expense, Entity Classification, FICA, Health Insurance, Hobby, Home Office, Husband/Wife, Medicare, Net Operating Loss, NOL, Passive Activity, Self Employ, Small Business, Social Security, Social Security Tax, Sole Proprietor, Start up costs, Sub-chapter S, Tax Guidance & Preparation, Tax Problems & Requests

The sole proprietorship or Limited Liability Corporation (LLC) is in my opinion the easiest type of business entity to set up and begin operating. It is not separate from its owner with the income and expenses reported on IRS Form 1040 Schedule C.

Some people have instant success with a venture that is profitable from the very beginning. However it is more common to be unprofitable in the first 24 to 36 months of operation. If you are loosing money it is important to remember that you MUST REPORT A PROFIT IN 2 OUT OF THE PREVIOUS 5 TAX YEARS TO AVOID BEING CONSIDERED BY THE IRS TO BE REALLY ENGAGED IN A HOBBY. For more details on the specifics of hobby versus business see my post at: http://johnrdundon.com/how-to-determine-what-is-a-business-vs-what-is-a-hobby/

When it comes to losses the other thing to keep in mind is that they can be limited basically in three different ways:

1. By the amount of your investment or basis limitation;
2. By the amount you have at risk or at-risk limitation; and
3. By the passive activity loss limitation.

Basis limitations do not apply to sole proprietors as they would with an S corporation shareholder or partner in a partnership. A sole proprietorship is predominantly financed by the proprietors own assets. Two obstacles must be overcome before a Schedule C loss is deductible as addressed in this particular order:

1. The at-risk limitations of IRC Sec. 465; and
2. The passive activity loss limitations of IRC Sec. 469.

The at-risk limitations apply before any loss is limited due to lack of material participation which is a threshold criteria of a passive activity. The proprietor’s at-risk limitation is calculated on IRS Form 6198. If a taxpayer cannot verify a material-participation level with respect to the Schedule C activity, then being at-risk for the loss is essentially immaterial. The at-risk concept is one that looks at the source of funds for the business. Usually sole proprietors would not be at-risk when:

• The business was financed with non-recourse loans – except for holding real property;
• A valid guarantee or stop-loss agreement is in force; or
• Amounts borrowed for use in the business are from a person with an interest in the business, other than a creditor, or who is
related to a person having an interest in the business under IRC Sec. 465(b)(3)(C).

Most all small businesses with gross receipts of $1 million or less are allowed to use the cash method of accounting (Rev. Proc. 2001-10). New proprietors generally begin using the cash method of accounting immediately. An existing business may qualify to change its accounting method by filing IRS Form 3115 – Application for Change in Accounting Method with its tax return under the automatic consent procedures. When changing from an accrual to a cash method of accounting usually a negative IRC Sec. 481(a) adjustment is deducted in the year of the change and a positive IRC Sec. 481(a) adjustment is generally reported in income over a four-year period.

Items withdrawn for contributions to charitable organizations are reported via to IRS Form 8283 Non-cash Charitable Contributions and finally to Schedule A Itemized Deductions.

Office-in-home deduction items are detailed separately on IRS Form 8829 Expenses for Business Use of Your Home rather than on the expense lines for rent, utilities, interest, etc.

Proper deduction of vehicle expenses includes a decision for utilizing the cents-per-mile deduction or the actual method. Both methods require maintaining a mileage log and an understanding
of which miles are business miles.

Additionally, an understanding of depreciation methods available, which includes knowing the weight of the vehicle, are important. IRC Sec. 179 deductions are limited to income, but regular depreciation, including bonus depreciation, can actually assist in creating or increasing an net operating loss (NOL).

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Qualified Medical Expense Tax Deductions for Long Term Care Services

January 27, 2012 Health Care Tax Credit, Health Insurance, Medical Expenses

Medical expenses include amounts paid for the diagnosis, cure,
mitigation, treatment, or prevention of disease under IRC 213, as well as amounts paid for qualified long-term care services under IRC 7702B. You may deduct certain medical expenses that are paid during the year and that are not compensated for by insurance to the extent that the expenses exceed 7.5% of your adjusted gross income. This is done as an itemized deduction on schedule A of form 1040.

This is reinforced by the tax court case of Estate of Lillian Baral, Deceased, David H. Baral, Administrator, Petitioner v.
Commissioner of Internal Revenue, Respondent 137 T.C. No.1

According to IRC Sec. 7702B(c) the term qualified long-term care services means the necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services and maintenance or personal care services required by a chronically-ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.

A chronically-ill individual means any individual who has been certified by a licensed health care practitioner as, among other conditions, requiring substantial supervision to protect the individual from threats to health and safety due to severe
cognitive impairment.

A licensed health care practitioner means any physician,
registered professional nurse, licensed social worker, or other individual who meets requirements prescribed by the
secretary.

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IRS Notice 2011-28: Reporting Health Insurance on W-2s

January 9, 2012 Health Insurance

Part of the Affordable Care Act of 2010 requires employers to report health insurance costs on the Forms W-2 starting with the 2011 Forms according to (IRC § Section 6051(a)(14)).

However IRS Notice 2010-69 gave employers a one-year reprieve from this requirement meaning in plain terms that this reporting requirement is essentially mandatory in tax year 2012. IRS Notice 2011-28 provided more ‘interim’ guidance including:

1) The amount entered in box 12, code DD, is for reporting purposes and not taxable.

2) Questions 28-31 deal with methods of calculating the employer’s cost of the insurance.

3) The amount to be entered in box 12, code DD, is the total of the cost of insurance “paid” by the employer, the cost paid by the employee with after-tax contributions, and the cost paid by the employee with pre-tax contributions.  However, if any amount of the insurance cost is paid by the employee through a Section 125 cafeteria plan, this amount is NOT included in box 12, code DD.  The costs of dental or vision insurance is not required to be included in this amount as well.

4) The W-2 forms for 2012 due in January 2013 will require the reporting of the health insurance costs UNLESS the employer is a small business as defined by filing fewer than 250 W-2 forms in 2011.

5) The Forms W-2 for 2013, due in January 2014, will require the reporting of the health insurance costs by all employers.

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Small Employer Health Insurance Credit 2011 – IRS Form 8941

November 3, 2011 Health Insurance, Self Employ, Small Business, Tax Credit

The small employer health insurance credit is applied for on IRS Form 8941.  The credit itself is based on the non-shareholder staff, their hours worked, wages and the premiums paid for them. The hours worked, wages and health insurance premiums of shareholders are not taken into account for purposes of the credit under §45R(e)(1)(A).

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