July 2010 Newsletter

Posted: 7/12/2010

Dear Client:

Recent tax legislation passed by Congress focuses on hiring incentives and health insurance coverage.  Some of these changes are effective immediately while other changes will be phased in over several years.  In addition, regulations have not been written so the exact application of much of the law is still unknown.    

Tax Changes Taking Effect in 2010

  • Payroll hiring incentives – See article
  • Small employer health insurance credit – See article
  • There is a 10% excise tax on tanning services after July 1, 2010.
  • Dependent coverage under employer health plans must be offered through age 25.
  • Non taxable treatment of medical care expenses is extended for dependents through age 26.
  • No preexisting condition exclusions for children under 19.
  • The adoption credit and employer exclusion is increased to $13,170; the adoption credit is now refundable.

Tax Changes Taking Effect in 2011:

  • W-2 must include the cost of employer-provided health insurance.
  • Over the counter drugs do not qualify for medical plan reimbursements (HSA and FSA plans) unless prescribed by a doctor.
  • Penalty is increased from 10% to 20% on non-qualifying HSA and Archer MSA distributions.
  • Small employers (under 100 employees) may establish “simple cafeteria plans” – under this plan, the employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for specialized qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self-insured medical expense reimbursement plan, and benefits under a dependent care assistance program.

Tax Change Taking Effect in 2012:

  • Taxpayers are required to prepare 1099 forms for payments in excess of $600 to corporations.  Previously payments to corporations were exempt from the 1099 requirement.

Tax Changes Taking Effect in 2013:

  • The maximum nontaxable contribution to health FSAs is capped at $2,500.
  • Additional tax of .9% (Hospital Insurance tax) on wages earned in excess of $250,000 joint and $200,000 single; the additional .9% also applies to self employment income in excess of the above amounts.
  • Unearned income Medicare surtax – 3.8% of the lesser of either (1) net investment income or (2) the excess of modified adjusted gross income over the threshold amount ($250,000 for a joint return and $200,000 single return).  For surtax purposes, gross income does not include excluded items, such as interest on tax-exempt bonds.
    • Unearned income equals interest, dividends, annuities, royalties, rents & capital gains.
  • Higher threshold for deducting medical expenses as an itemized deduction – 10% threshold if under 65, if over 65 then a 7.5% threshold until 2016 which afterwards will be 10%.

Tax Changes Taking Effect in 2014:

  • Larger employers (at least 50 full time employees) not offering affordable health insurance coverage may pay a penalty.
  • Individuals not carrying health insurance face a penalty if they do not maintain minimum essential coverage as recognized by the HHS and the IRS.
  • Employers offering minimum essential coverage through an eligible employer sponsored plan and paying a portion of that coverage must provide qualified employees with a ‘free choice’ voucher whose value can be applied to purchase of a health plan through an Insurance Exchange.  The employer treats the free choice voucher as an amount for compensation for personal services actually rendered.
  • Refundable tax credit is available for low- or moderate-income families buying certain health insurance by enrolling in a qualified health plan through a State-established exchange.
  • “Qualifying health plans” may be offered through cafeteria plans by “qualifying employers” – a reimbursement for premiums for coverage under any “qualified health plan” through a health insurance exchange is a qualified benefit under a cafeteria plan if the employer is a qualified employer (generally, smaller businesses).

Tax Change Taking Effect in 2018:

  • 40% nondeductible excise tax on insurance companies to the extent annual premiums exceed $10,200 for single and $27,500 for family

EFT Requirement – The US Department of Treasury has announced that businesses currently permitted to use paper Federal Tax Deposit (FTD) coupons will have to make those deposits electronically beginning in 2011.  The major exception will be for businesses with $2,500 or less in quarterly tax liabilities that pay their tax liability when they file their return.

Bush Tax Cuts are Scheduled to Expire - The table below shows the increase in tax rates as currently scheduled when the current tax cuts expire at the end of this year.

Individual Income Tax Rates

2010

2011

10%

15%

15%

25%

28%

28%

31%

33%

36%

35%

39.6%

LT Capital Gains

15%

20%

Qualified Dividends

15%

Ordinary Tax Rate

 

Section 179 Update - The expensing limit of $250,000 has been extended to 2010.

This letter is a brief overview of complex legislation and should not solely be relied upon to make tax decisions.  Please call our office on how to position yourself or your business in light of the changing tax landscape.

Please contact us and we will be happy to meet with you.

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