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More healthcare provisions now in effect
The Affordable Care Act, enacted on March 23, 2010, contains some tax provisions that took effect in 2010. Others became effective for 2011. More will be implemented during the next several years. The IRS has provided a list of provisions now in effect:
Small Business Health Care Tax Credit – This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees. The credit 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.
Changes to Flexible Spending Arrangements (FSAs) – Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from FSAs 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 plan. Similar rules apply to 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.
FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if the requirements contained in IRS Notice 2010-128 and Notice 2011-5 are met.
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 healthcare tax benefit applies to various work place and retiree health plans. This change allows 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 make pre-tax contributions to pay for this expanded benefit. Self-employed individuals who qualify for the self-employed health insurance deduction will also benefit.
Optional Reporting for Employer-Provided Health Coverage – Beginning in 2011, the healthcare act requires employers to report the value of the health insurance coverage they provide employees on each employee's annual Form W-2. However, to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with this requirement, the IRS deferred the reporting requirement, making reporting by employers optional this year.
This reporting is intended for informational purposes only. 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.
Adoption Credit – The act raises the maximum adoption credit to $13,170 per child for 2010. It also makes the credit refundable for 2010 and 2011, meaning that you can benefit from the credit even if you owe no tax for the 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.
More information is available in IRS Notice 2010-66, Revenue Procedure 2010-31 and Revenue Procedure 2010-35.
Group Health Plan Requirements – The 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 IRS Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued.
Medicare Part D Coverage Gap "Donut Hole" Rebate – The act provided a one-time $250 rebate in 2010 to assist Medicare Part D recipients who had reached their Medicare drug plan's coverage gap. This payment is not taxable. Nothing concerning the rebate is reported on your tax return.
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