Last year’s federal
healthcare reform legislation (officially known as The Patient Protection and
Affordable Care Act) goes into effect in phases over the course of the next
several years. The Act’s wide-ranging scope includes many provisions that affect
health care programs offered by employers.
If your company offers a
healthcare program, here are a few of the many important facts that you and/or
your employees should know about using 2010 funds and planning for 2011.
Over-the Counter Medicine or Drugs
Beginning January 1, 2011, over-the-counter (OTC) drugs
may only be reimbursed through tax-favored health care programs only if the OTC
drugs are prescribed. (Previously, the cost of non-prescribed OTC drugs was
reimbursable.)
Tax-favored health care
programs include:
-
Health Savings
Accounts (HSAs),
-
Archer Medical
Savings Accounts (Archer MSAs),
-
Health Flexible
Spending Arrangements (FSAs), and
-
Health Reimbursement
Arrangements (HRAs).
This rule is effective
for all OTC purchases made on or after January 1, 2011 (even if the funds were
set aside in 2010). This change does not affect eligible OTC drug purchases made
on or before December 31, 2010. The rule does not affect insulin, even if
purchased without a prescription, or other health care expenses such as medical
devices, eye glasses, contact lenses, co-pays and deductibles.
Small Business Health Care Tax Credit
The small business health care tax credit encourages small
businesses and small tax-exempt organizations to offer health insurance coverage
to their employees, particularly to moderate and lower-income workers. In
general, the credit is available to small employers that pay at least half of
the premium for single health insurance coverage for their employees.
Many employers meet the
eligibility requirements for the credit, including:
-
religious
institutions that provide coverage through denominational organizations,
-
small employers that
cover their workers through insured multiemployer health and welfare plans,
and
-
employers that
subsidize their employees’ health care costs through a broad range of
contribution arrangements.
The maximum credit goes
to employers with 10 or fewer full-time equivalent (FTE) employees earning
annual average wages of $25,000 or less. The credit is phased out for employers
that have 25 or more FTEs or that pay average wages of $50,000 or more per year.
The eligibility rules are based on “full-time equivalents” (FTEs), not the
number of employees; therefore, employers that employ more than 25 people but
use part-time workers may still qualify for the credit.
The credit is available
for tax years 2010 through 2013 and any two years after that. For the 2010-2013
tax years, the maximum credit is 35% of premiums paid by eligible small
businesses and 25% of premiums paid by eligible tax-exempt organizations. The
maximum tax credits will increase to 50% and 35%, respectively, starting in
2014. The IRS has issued Form 8941 to help eligible employers calculate the
credit, which should be reported on Line 44F of IRS Form 990-T. These forms are
available at
www.irs.gov,
along with Notice 2010-82 published on December 20, 2010, which is designed to
assist employers in determining eligibility for and the amount of the credit.
Conclusion
The
Affordable Care Act has many detailed provisions requiring both employers and
employees to remain diligent in managing their health care benefits. Where
applicable, employees should be advised that OTC medicines or drugs are no
longer reimbursable as of January 1, 2011. At the same time, eligible employers
that pay 50% or more of single health care coverage for their employees may
qualify for up to a 35% tax credit.
These are just two
significant examples of how the Affordable Care Act affects employers and
employees and is not intended to provide an exhaustive analysis. For more
information on how your particular business may be affected by the Act, visit
www.irs.gov.
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These materials
are designed to provide general information prepared by professionals in regard
to the subject matter covered. It is provided with the understanding that the
author is not engaged in rendering legal, accounting, or other professional
service. Although prepared by professionals, these materials should not be
utilized as a substitute for professional service in specific situations. If
legal advice or other expert assistance is required, the service of a
professional should be sought.
