The Affordable Care Act (ACA) requires CPAs to be experts on the key provisions of health care reform. For example, tax professionals are going to be required to help clients consider whether it will be more valuable for them to go to a state exchange or a private insurer based on how many FTEs they have. Here's how Health Care Reform affects the role of the CPA.
Health Care Reform Increases CPA's Role in Health Insurance Decisions
The primary shift in the role of the CPA will center on assisting corporate clients in determining:
The size of the business based on Full-Time Equivalent Employees (FTEs) vs. annual revenue, and
The amount of any applicable business tax credits and penalties.
Also, CPAs will be required to help individual clients consider:
Whether it will be more valuable for them to go to a state exchange or a private insurer based on household size and income, and
The amount of any applicable individual tax credits and penalties.
Overview of the Key Tax Provisions of Health Care Reform
CPAs need to understand the following tax-related provisions of health care reform:
1. Health Flexible Spending Account (FSA) Limitation
Effective January 1, 2013, a maximum election limit will be placed on the amount an employee can contribute to a health Flexible Spending Account (FSA).
The maximum election limit will be $2,500 per participant. It is important to note that this limit only applies to pre-tax contribution by an single employee (i.e. A husband and wife may each elect $2,500 if they participate in separate FSA plans). Similarly, an employer may make contributions to an FSA above and beyond the $2,500 limit.
Beginning in 2014, the maximum election limit will be indexed to the CPI.
2. Medical Expense Deduction Threshold Increase
Effective January 1, 2013, unreimbursed medical expenses will be deductible by taxpayers under age 65 only to the extent they exceed 10% of adjusted gross income (AGI) for the tax year.
3. Employer W-2 Reporting Requirements
As part of the ACA, employers are required to report the cost of health benefits coverage under an employer-sponsored group health plan.
4. Employer Form 720 Reporting Requirements
Section 4376 of the Internal Revenue Code, as added by the Patient Protection and Affordable Care Act, imposes a temporary annual fee on a plan sponsor of an applicable self-insured health plan (including certain health reimbursement arrangement, or HRA plans) for each plan year ending on or after October 1, 2012, and before October 1, 2019. Employers must file Form 720 annually to report and pay the fees.
5. Individual Premium Tax Credits
The ACA includes provisions to lower individual health insurance premiums for Americans with household incomes below 400% of the federal poverty line, or FPL (that’s the majority of Americans). New rules give states the option of extending coverage in Medicaid to most people with incomes under 133% of poverty. For households with higher incomes (up to 400% of poverty), PPACA provides tax subsidies that reduce premium costs. The premium tax subsidies will begin in 2014.
6. Small Employer Health Care Tax Credits
The ACA creates a new tax credit for eligible small companies who provide health care to their employees. This credit is broken into two phases:
Phase I -- tax years 2010 - 2013
Phase II -- tax years 2014 and later
During Phase I, the credit is worth up to 35% of a company's health insurance costs (25% for non-profits).
During Phase II, the credit is worth up to 50% of a company's health insurance costs (35% for non-profits).
7. Employer Tax Penalties For Not Offering Health Insurance
Starting in 2014 2015, businesses with more than 50 "Full-Time-Equivalent" employees will be required to either offer health insurance coverage or else pay a tax penalty based on full-time employees. The vast majority of U.S. businesses are not subject to this penalty. Here's an easy way to calculate the approximate penalty (if applicable) for any business not offering health insurance coverage.
You need the following variables to calculate the tax penalty:
# of Full-Time Employees. This is the number of employees working 30 or more hours per week.
Full-Time-Equivalent of Part-Time Employees. This is the total number of hours worked by part-time employees divided by 120.
Total Full-Time-Equivalent (FTE) Employees. This is #1 plus #2.
8. Individual Tax Penalties For Not Purchasing Health Insurance
The Affordable Care Act does not require individual to purchase health insurance, but most individuals face tax penalties starting in 2014 if they don't purchase qualified coverage for their household. This simple flowchart illustrates how those individual responsibilities work.
Article updated July 2013 to reflect the delay of the employer tax penalties ("employer mandate") until 2015.