In This Issue February 2011
~Various Tax Tips
~ Food Drive and a chance to win a basket of Financial Goodies!
Various Tax Tips
There have been many misconceptions about the effects of some of the provisions of the Health Care Act, therefore we will take a look at the some of the provisions in the bill by chronology. These elements are the ones that may affect your tax return. There are other sections of the Health Care Act which have nothing to do with the tax return, therefore are not discussed.
The basic idea of the health care bill is the creation of state insurance exchanges. These exchanges are to be an alternative to the insurance companies we currently use. These must be created by the year 2014.
Currently, the government has set up a program at the national level to insure uninsurable individuals. This is a temporary fix since they will be able to secure insurance through the exchanges in the future. This plan sets premiums at a more affordable level because there is a maximum formula for these premiums.….
Beginning in 2010, children of taxpayers who are under the age of 26 will be allowed to be covered under the parent’s insurance if the employer has a group plan that provides family coverage. This increased benefit to the taxpayer will be nontaxable just as the current coverage provided by the employer is nontaxable. The child need not be a dependent to qualify.
In the year 2011, employers will be required to disclose the cost of health care insurance of its employees on the W-2. Emails have been going around indicating that this inclusion will be taxable. The truth is that the number is informational only. The insurance cost will be included in W-2, Box 12 using the code DD. This is the same box that contains the amount of 401-k contributions and other information that is required to be disclosed. The amount will not increase the wages subject to tax. The future use of the data gathered through this disclosure of this information is not known at this time.
Additionally in 2011 the ability to pay for nonprescription over-the-counter drugs such aspirin, Tylenol, cold medicine and the like will no longer be allowed using the flex spending account. These changes may require you to rethink you flex spending contribution for coming years. There has been some relief given. If your doctor prescribes an over-the-counter drug, you may still purchase that with the HSA or flex spending account (FSA) monies. If the flex account operates using a debit card, the pharmacist will have to assign a prescription number to the drug in order to use the debit card. The key is to obtain the prescription from the doctor.
The FSA accounts will undergo another change in 2013 which will limit the maximum amount that may be contributed to $2,500. This may require planning if the flex account is being used to fund large expenses such as braces.
The health care bill increases the maximum adoption credit and employer provided adoption exclusion by $1,000 to $13,170. In addition, the credit will now be refundable in the same manner as the earned income credit. In addition, any credit that remains from prior years will refundable. There will a special attachment to the tax return proving the adoption. Because of this extra attachment, the tax returns containing this credit will need to be paper filed rather than electronically filed. This will slow the refund time for returns with this credit.
In 2010, Medicare recipients who have drug expenses that are not paid for by Medicare because they entered the donut hole may have received a payment of $250. This payment is meant to offset some of the costs that are not covered by Medicare. In the future the donut hole will shrink and eventually disappear. Your overall drug expenses will need to be reduced by the $250 before claiming the remainder on Schedule A. You will need to mention the $250 payment at your tax appointment.
In 2013, it will be more difficult to deduct medical expenses. Deductible medical expenses will be the amount that exceeds 10% of adjusted gross income rather than the former 7.5% level. This change is deferred for taxpayers age 65 or older until 2017.
By the year 2014 all individuals will be expected to have health care. The health care will be either a personal policy or an employer provided policy. Individuals who are not exempt from this will be penalized if they do not have health care coverage. At the same time, companies employing 50 or more fulltime employee will be required to provide health care coverage for their employees.
There is a potential taxability to health insurance. In the year 2017, individuals who are the recipient of health insurance policies commonly known as Cadillac plans will include the employer provided benefit in income. Currently under the health care bill, these are the only individual who must include the benefit in income.
There are cost associate with providing the changes within this bill. Beginning in the year 2014 high income individuals will be assessed an additional amount of Medicare tax. There are two situations where this additional tax will apply. The first instance is a .09% Medicare tax on the excess wages earned over the following limits. The limits are wages of $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly.
The other Medicare tax of 3.8% applies to high income taxpayers who have certain investment type income. This income includes interest, dividends, capital gains, annuities, and business activities such as partnerships and S corporation interest where there is not material participation. Once again this applies to high income earners. The investment income in excess of adjusted gross income of $200,000 for singles and $250,000 for joint filers will be subject to the new tax. Just think, you can pay Medicare tax without having earned income.
Businesses have been affected by the health care act as well as individuals. Beginning in 2010, certain small businesses may qualify for a credit of 35% of the employer’s out of pocket health insurance costs. There are various conditions which may apply. If you have a small business that pays health insurance for employees other than the owners or related parties, you may want to discuss the potential benefits.
There are various other provisions of the health care bill that may affect you over the coming years of implementation that do not necessarily have tax ramifications. One very important thing to watch for is a repeal or modification of this law over the implementation time.
FOOD DRIVE – Johnson Financial Services is hosting a food drive from now until April 15th!
Inspired by the story of a beautiful young lady (Julie Brock-Garcia) we are hosting a food drive. Please bring non-perishable foods to our office and enter a drawing for a chance to win a gift certificate for our professional accounting services and a basket filled with financial literacy goodies. All donations will go to the food pantry for Catholic Charities. You may also contribute online at https://catholiccharitiesks.org/sslpage.aspx?pid=298. If you make a donation online, please send us an email and we gladly put your name in the drawing. THANK YOU!!
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