The Patient Protection and Affordable Care Act – nicknamed ObamaCare – bring many changes and 20 new taxes that will affect tax years 2012 and 2013. Here are a few major points that entrepreneurs will want to pay attention to:
The Top 3 Things to Plan for in ObamaCare
- 2012 W-2 reporting of health benefits for businesses with over 250 W2’s
- 2013 bring new taxes – 0.9% on wages above $200,000 and 3.8% on net investment income over $200,000
- The 2014 employee threshold of 50 employees is based on 2013 activity – adjust employment strategy now!
What follows is a more detailed breakdown of these tax implications:
#1 – W-2 Reporting of Health Benefits
Beginning 2012, W-2s for employers filing 250 or more W-2s must report the cost of healthcare coverage (employee and employer portion) in Box 12 of Form W-2 with a code DD. Reporting is optional for dental, vision and other health reimbursement arrangement (HRA) contributions. No reporting requirement on Form W-3. Even if you have less than 250 employees, this could catch you if you hire a lot of seasonal workers or have high turnover.
#2 – New Taxes for 2013
a) .9% Medicare tax on wages over $200,000 (single), $250,000 (MFJ). This applies to self-employed individuals as well. (PLANNING NOTE – keep in mind when preparing 2013 estimated tax calculations.)
b) The employer is required to withhold the additional .9% beginning on wages that exceed $200,000
- The employer is not required to match the additional .9%
- The employer is subject to penalties if withholding requirement is not met
- The employee cannot request that the employer not withhold the additional tax even if the employee files a joint return and will be under the $250,000 threshold. Excess will be credited on the individual tax return. (PLANNING NOTE – check the 2013 payroll setups to be sure this will be withheld once the employee reaches $200,000 in wages)
c) 3.8% Medicare tax on the lesser of net investment income or modified AGI over $200,000 ($250,000 MFJ) (PLANNING NOTE – keep in mind when preparing estimated tax calculations for 2013.)
- applies to individuals, estates and trusts
- Includes interest, dividends, rent, royalties, capital gains, passive trade or business income (PLANNING NOTE – check to be sure the taxpayer does not qualify to be treated as non-passive since only the passive activity is subject to the additional tax.)
d) Schedule A medical expense threshold rises to 10% unless age 65
e) Flexible spending account contributions capped at $2,500 and cannot include over the counter medications (PLANNING NOTE – check with client to be sure their cafeteria plans have been adjusted to the $2,500 amount if their plan had a higher cap and also amended if it included over the counter medications.)
#3 – Planning ahead for 2014
a) Large employer penalties re: healthcare coverage: An employer is considered a large employer if an average of 50 or more full-time equivalent (FTE) employees were employed the preceding year. Although penalties for large employers are not effective until 2014, since the calculation is based on the preceding year, we will need to be sure our clients who hover around 50 employees are aware of the potential penalty and aware of the calculation and how employees are classified.
b) Non-discrimination requirement for small and large employers – the lookback period is 2013 so planning this year will be important as well.