Pace & Associates

Supreme Court upholds health care law, impacting businesses and individuals — and their taxes

By JOHN PACE

On June 28 the U.S. Supreme Court, in a much-anticipated ruling, generally upheld the Patient Protection and Affordable Care Act of 2010. The decision has far-reaching implications, many of which will financially impact businesses and individuals.

The main provision at issue was whether it was constitutional for the act to require that, starting in 2014, most Americans have a basic level of health insurance or pay a tax penalty. In a 5-4 decision, the Court found that the provision was constitutional within Congress’s power under the taxing clause.

The decision means that, generally, without congressional action, the provisions of the health care act that already have gone into effect will stand, and the provisions that are scheduled to go into effect in future years will, indeed, go into effect.

Some key provisions affecting businesses include the following:

Tax credits for certain small businesses that provide health care coverage to employees. This provision went into effect in 2010 and is available through 2013.

Tax Penalties for failing to provide health care coverage. These are scheduled to go into effect in 2014.

Various requirements related to the scope of health care coverage provided. Examples include coverage of employees’ young adult children and limits on waiting periods for coverage under a group policy. Some went into effect in 2010; others are scheduled to go into effect in 2014.

And, here are some key provisions affecting individuals:

New tax for not having health insurance. U.S. citizens, legal residents and their dependents will have to maintain minimum essential health insurance coverage or pay a tax penalty. “Minimum essential coverage” includes government sponsored programs (e.g., Medicare, Medicaid, Children’s Health Insurance Program), eligible employer-sponsored plans, plans in the individual market, certain grandfathered group health plans and other coverage as recognized by Health and Human Services (HHS) in coordination with IRS.

Higher Medicare taxes for high-income taxpayers. Starting in 2013, taxpayers with earned income in excess of certain limits will pay an additional 0.9% Medicare tax on the excess.

New, 3.8% Medicare tax on unearned income, such as interest, dividends, rents, royalties and certain capital gains, to the extent that their modified adjusted gross income exceeds certain thresholds.

Increase in medical expense deduction floor. Starting in 2013, the act raises the threshold for deducting unreimbursed medical expenses from 7.5% to 10% of adjusted gross income.

Changes to Flexible Spending Accounts (FSAs) for health care. Starting in 2011, tax-free FSA distributions could no longer be used to pay for unprescribed over-the-counter medicine. Starting in 2013, annual contributions to FSAs for medical expenses will be limited.

If you’d like to learn more about how the Supreme Court’s decision might affect your business’s finances or your own, please contact us. We can help businesses determine what, if any, changes they may be required to make — or may want to make — to the health coverage they offer in light of the decision. And we can help individuals determine the impact on their taxes and whether there are any tax planning strategies they should consider implementing this year.

John Pace is a Tax Partner with the firm of Pace & Associates CPAs, LLC with offices in Fort Davis, Alpine and Fort Stockton. Contact him at 432.426.3324 and 432.837.3371, and john.pace@mrpacecpa.com.

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