Small Business Health Care Tax Credit
This new credit helps small businesses and small tax-exempt
organizations afford the cost of covering their employees and is specifically
targeted for those with low- and moderate-income workers. The credit is
designed to encourage small employers to offer health insurance coverage for
the first time or maintain coverage they already have. In general, the credit
is available to small employers that pay at least half the cost of single
coverage for their employees. Learn more by browsing our page on the Small
Business Health Care Tax Credit for Small Employers and our news release.
Changes to Flexible Spending Arrangements
Effective Jan. 1, 2011, the cost of an over-the-counter
medicine or drug cannot be reimbursed from Flexible Spending Arrangements or
health reimbursement arrangements unless a prescription is obtained. The change
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. The new standard applies only to purchases made on or
after Jan. 1, 2011, so claims for medicines or drugs purchased without a
prescription in 2010 can still be reimbursed in 2011, if allowed by the
employer’s plan. A similar rule goes into effect on Jan. 1, 2011 for Health
Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).
Employers and employees should take these changes into account as they make
health benefit decisions for 2011.
For more information, see news release IR-2010-95, Notice
2010-59, Revenue Ruling 2010-23 and our questions and answers.
FSA and HRA participants can continue using debit cards to
buy prescribed over-the-counter medicines, if requirements are met. For more
information, see news release IR-2010-128 and Notice 2011-5.
IRS partners can spread the word to their clients with the
help of a Health Plan Changes flyer and a drop-in article, Does your Healthcare
Program need a checkup?
Proposed Regulations Issued on Medical Device Excise Tax
On February 3, 2012, the IRS and the Treasury Department
issued proposed regulations on the new 2.3-percent medical device excise tax
(IRC §4191) that manufacturers and importers will pay on their sales of taxable
medical devices starting in 2013. Additional information is available in the
Medical Device Excise Tax FAQs.
The IRS and Treasury Department request comments on the
proposed regulations by May 7, 2012. Comments may be submitted electronically,
by mail or hand delivered to the IRS. The preamble to the proposed regulations
provides instructions on how to submit comments.
Health Insurance Premium Tax Credit
Starting in 2014, individuals and families can take a new
premium tax credit to help them afford health insurance coverage purchased
through an Affordable Insurance Exchange. Exchanges will operate in every state
and the District of Columbia
The portion of the law that will allow eligible individuals
to use tax credits to purchase health coverage through an Exchange is not
effective until 2014.
Exchanges will offer individuals a choice of health plans
that meet certain benefit and cost standards. The Department of Health and
Human Services (HHS) administers the requirements for the Exchanges and the
health plans they offer. Additional information about the Exchange can be found
at www.healthcare.gov.
Health Coverage for Older Children
Health coverage for an employee's children under 27 years of
age is now generally tax-free to the employee. This expanded health care tax
benefit applies to various work place and retiree health plans. These changes
immediately allow employers with cafeteria plans –– plans that allow employees
to choose from a menu of tax-free benefit options and cash or taxable benefits
–– to permit employees to begin making pre-tax contributions to pay for this
expanded benefit. This also applies to self-employed individuals who qualify
for the self-employed health insurance deduction on their federal income tax
return. Learn more by reading our news release or this notice.
Excise Tax on Indoor Tanning Services — First Quarterly
Payment Was Due Nov. 1, 2010
A 10-percent excise tax on indoor UV tanning services went
into effect on July 1, 2010. The first payment of the tax was due Monday, Nov.
1. Payments are made along with Form 720, Quarterly Federal Excise Tax Return.
The tax doesn't apply to phototherapy services performed by a licensed medical
professional on his or her premises. There's also an exception for certain
physical fitness facilities that offer tanning as an incidental service to
members without a separately identifiable fee. For more information on the tax
and how it will be administered, see the Indoor Tanning
Services Tax
Center
Employer-Provided Health Coverage — Not Taxable; Reporting
is Voluntary for All Employers for 2011 and Small Employers for 2012
Starting in tax year 2011, the Affordable Care Act requires
employers to report the cost of coverage under an employer-sponsored group
health plan. To give employers more time to update their payroll systems,
Notice 2010-69, issued fall 2010, made this requirement optional for all
employers in 2011. IRS Notice 2011-28 provided further relief for smaller
employers filing fewer than 250 W-2 forms by making the reporting requirement
optional for them at least for 2012 and continuing this optional treatment for
smaller employers until further guidance is issued. Notice 2012-9, issued Jan.
3, 2012, restates and clarifies the guidance provided in Notice 2011-28,
including the information on how to report, what coverage to include and how to
determine the cost of the coverage.
The 2011 Form W-2 is available for viewing on IRS.gov. This
is the W-2 that most employees will receive in early 2012. The form includes
the codes that employers may use to report the cost of coverage under an
employer-sponsored group health plan.
This reporting is for informational purposes only, to show
employees the value of their health care benefits so they can be more informed
consumers. The amount reported does not affect tax liability, as the value of
the employer contribution to health coverage continues to be excludible from an
employee's income, and it is not taxable.
For more information, see the 2011 Form W-2, IR-2011-31,
Notice 2012-9 (restating and clarifying Notice 2011-28), Notice 2010-69, Notice
2011-28, frequently asked questions and our multimedia products — an IRS
YouTube video and a webinar, Reporting of Employer Healthcare Coverage on Form
W-2.
Adoption Credit
The Affordable Care Act raises the maximum adoption credit
to $13,360 per child, up from $13,170 in 2010 and $12,150 in 2009. The adoption
tax credit is refundable for tax year 2011, meaning that eligible taxpayers can
get it even if they owe no tax for that year. In general, the credit is based
on the reasonable and necessary expenses related to a legal adoption, including
adoption fees, court costs, attorney’s fees and travel expenses. Income limits
and other special rules apply. In addition to attaching Form 8839, Qualified
Adoption Expenses (see instructions), eligible taxpayers must include with
their 2011 paper tax return one or more adoption-related documents to avoid
delaying their refund. Taxpayers may also be asked, after filing their returns,
to substantiate any qualified adoption expenses they paid.
For other information, see our news release, tax tip,
questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31,
Revenue Procedure 2010-35 and Revenue Procedure 2011-52.
Medicare Shared Savings Program
The Affordable Care Act establishes a Medicare shared
savings program (MSSP) which encourages Accountable Care Organizations (ACOs)
to facilitate cooperation among providers to improve the quality of care
provided to Medicare beneficiaries and reduce unnecessary costs. More
information can be found in Notice 2011-20, which solicits written comments
regarding what additional guidance, if any, is needed for tax-exempt
organizations participating in the MSSP through an ACO. This guidance also
addresses the participation of tax-exempt organizations in non-MSSP activities
through ACOs. Additional information on the MSSP is available on the Department
of Health and Human Services website.
The Centers for Medicare and Medicaid Services has released
final regulations describing the rules for the Shared Savings Program and
accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20
continues to reflect IRS expectations regarding the Shared Savings Program and
ACOs, and provides additional information for charitable organizations that may
wish to participate.
Qualified Therapeutic Discovery Project Program
This program was designed to provide tax credits and grants
to small firms that show significant potential to produce new and cost-saving
therapies, support U.S. jobs
and increase U.S.
Submission of certification applications began June 21,
2010, and applications had to be postmarked no later than July 21, 2010, to be
considered for the program. Applications that were postmarked by July 21, 2010,
were reviewed by both the Department of Health and Human Services (HHS) and the
IRS. All applicants were notified by letter dated October 29, 2010, advising
whether or not the application for certification was approved. For those
applications that were approved, the letter also provided the amount of the
grant to be awarded or the tax credit the applicant was eligible to take.
The IRS published the names of the applicants whose projects
were approved as required by law. Listings of results are available by state.
Learn more by reading the IRS news release, the news release
issued by the U.S. Department of the Treasury, the page on the HHS website and
our questions and answers.
Group Health Plan Requirements
The Affordable Care Act establishes a number of new
requirements for group health plans. Interim guidance on changes to the
nondiscrimination requirements for group health plans can be found in Notice
2011-1, which provides that employers will not be subject to penalties until
after additional guidance is issued. Other information on requirements is
available on the websites of the Departments of Health and Human Services and
Labor and in additional guidance.
Additionally, TD 9575 and REG-4003810, issued by DOL, HHS and IRS,
provide information on the summary of benefits and coverage and the uniform
glossary.
Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance
Issuers
The Affordable Care Act requires the Department of Health
and Human Services (HHS) to establish the Consumer Operated and Oriented Plan
program (CO-OP program). It also provides for tax exemption for recipients of
CO-OP program grants and loans that meet additional requirements under section
501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption
under section 501(c)(29) and solicited written comments regarding these
requirements as well as the application process. Revenue Procedure 2012-11,
issued in conjunction with temporary regulations and a notice of proposed rulemaking,
sets out the procedures for issuing determination letters and rulings on the
exempt status of organizations applying for recognition of exemption under
501(c)(29).
An overview of the CO-OP program is available on the
Department of Health and Human Services website.
Medicare Part D Coverage Gap “donut hole” Rebate
The Affordable Care Act provides a one-time $250 rebate in
2010 to assist Medicare Part D recipients who have reached their Medicare drug
plan’s coverage gap. This payment is not taxable. This payment is not made by
the IRS. More information can be found at www.medicare.gov.
Additional Requirements for Tax-Exempt Hospitals
The Affordable Care Act added new requirements that
tax-exempt hospitals must meet to maintain their tax-exempt status. (See Notice
2010-39 and Notice 2011-52.) Form 990, Schedule H, for tax year 2010 was
revised to include a new Part V, Section B, to gather information on hospitals'
compliance with the new requirements and on related policies and practices. To give
the hospital community time to familiarize itself with the types of information
the IRS is requesting, Part V, Section B of Schedule H was made optional for
the 2010 tax year (see Announcement 2011-37).
The IRS considered public input and made revisions to Part
V, Section B for tax year 2011 (see the draft Form 990, Schedule H and
instructions). Hospitals are required to complete all parts and sections of
Schedule H for tax year 2011, with the exception of lines 1-7 of Part V,
Section B, which relate to community health needs assessments (see Notice
2012-4). These lines will be optional for 2011. The IRS continues to welcome
public input on the new tax-exempt hospital requirements of the Affordable Care
Act.
Annual Fee on Branded Prescription Pharmaceutical
Manufacturers and Importers
The Affordable Care Act created an annual fee payable
beginning in 2011 by certain manufacturers and importers of brand name
pharmaceuticals. On Aug. 15, 2011, the IRS issued temporary regulations and a
notice of proposed rulemaking on the branded prescription drug fee. The
temporary regulations describe the rules related to the fee, including how it
is computed and how it is paid. The notice of proposed rulemaking solicits
comments regarding these rules.
On Nov. 4, 2011, the IRS issued Notice 2011-92, providing
guidance on the branded prescription drug fee for the 2012 fee year. A covered
entity may choose to submit Form 8947, Report of Branded Prescription Drug
Information, by Dec. 15, 2011, in accordance with the form instructions. For
additional information and guidance previously issued, see Notice 2010-71,
Notice 2011-9, Revenue Procedure 2011-24 and Notice 2011-46.
Modification of Section 833 Treatment of Certain Health
Organizations
The Affordable Care Act amended section 833 of the Code,
which provides special rules for the taxation of Blue Cross and Blue Shield
organizations and certain other organizations that provide health insurance.
IRS Notice 2010-79 provides transitional relief and interim guidance on the
computation of an organization’s taxpayer’s Medical Loss Ratio for purposes of
section 833, the consequences of nonapplication and changes in accounting
method. Notice 2011-04 provides additional information and the procedures for
qualifying organizations to obtain automatic consent to change its method of
accounting for unearned premiums. Notice 2011-51 extends the transitional
relief and interim guidance provided in Notice 2010-79 for another year to any
taxable year beginning in 2010 and the first taxable year beginning after Dec.
31, 2010.
Limitation on Deduction for Compensation Paid by Certain
Health Insurance Providers
The Affordable Care Act amended section 162(m) of the Code
to limit the compensation deduction available to certain health insurance
providers. The amendment goes into effect for taxable years beginning after
Dec. 31, 2012, but may affect deferred compensation attributable to services
performed in a taxable year beginning after Dec. 31, 2009. Initial guidance on
the application of this provision can be found in Notice 2011-2, which also
solicits comments on the application of the amended provision.
Employer Shared Responsibility Payment
Starting in 2014, certain employers must offer health
coverage to their full-time employees or a shared responsibility payment may
apply. Information may be found in news releases IR-2011-92 and IR-2011-50 and
Notices 2011-73 and 2011-36. Additionally, Notice 2012-17 provides answers to
frequently asked questions from employers regarding automatic enrollment,
employer shared responsibility and waiting periods.
Patient-Centered Outcomes Research Institute
The Affordable Care Act establishes the Patient-Centered
Outcomes Research Institute and that the institute be funded by the
Patient-Centered Outcomes Research Trust Fund. The institute will assist
patients, clinicians, purchasers, and policy-makers in making informed health
decisions by advancing clinical effectiveness research. The Trust Fund is to be
funded in part by fees to be paid by issuers of health insurance policies and
sponsors of self-insured health plans. IRS Notice 2011-35 requests comments
regarding how the fees to fund the institute should be calculated and paid,
including several possible rules and safe harbors.
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