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	Health Care Reform Legislation Update Patient Protection and Affordable Care Act of 2010 and Health Care and Education Reconciliation Act of 2010 On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act of 2010, the core piece of legislation that overhauls the health care system in this country. On March 30, the President signed the Health Care and Education Reconciliation Act of 2010, a shorter piece of legislation that amends several provisions in the Patient Protection Act. Taken together, these two pieces of legislation provide for massive health care reform and include an estimated $437 billion in new taxes and fees. The laws contain over 2,500 pages. They are estimated to cost $940 billion over ten years and to cut the federal deficit by $143 billion over the same period. The expanded health care coverage provided by the legislation is expected to reduce the number of uninsured by 32 million. Provisions in the health care reform laws will gradually go into effect over the coming years. The following timeline highlights some of the key tax provisions in the legislation. 2010 TANNING SERVICES. Effective July 1, 2010, a 10% tax will be imposed on indoor tanning services. ADOPTION CREDIT. The 2010 tax credit for adoption expenses is increased to $13,170 and is made refundable. Also, the credit is extended through 2011. BUSINESS TAX CREDIT. Small businesses with up to 25 employees may qualify for a tax credit for the cost of purchasing health insurance for their employees. OTHER 2010 CHANGES. » Children can remain on parents' insurance policies until age 26. » Insurance companies cannot deny coverage to children with pre-existing conditions. » Medicare recipients in the drug coverage "donut hole" will receive a one-time $250 rebate check to offset their costs. ("Donut hole" refers to the gap in drug coverage for Medicare patients.) » Included in the Reconciliation Act are provisions ending private lending for student loans. Starting July 1, 2010, those who take out student loans will borrow directly from the federal government instead of from a bank or other private lender. This change eliminates fees paid to banks to originate student loans. 2011 MEDICARE DRUG COVERAGE. For those with Medicare drug coverage in the "donut hole," the law provides a 50% discount on brand-name drugs. Additional discounts are phased in over the coming years, and the donut hole is eliminated by 2020. LONG TERM CARE. A long-term care insurance program is created, financed by voluntary payroll deductions. NEW REPORTING REQUIREMENT. Employers must report the value of each employee's health insurance coverage on the employee's annual Form W-2. MEDICAL SAVINGS ACCOUNTS. Over-the-counter medications can no longer be paid for with funds in health savings accounts (HSAs), flexible spending accounts (FSAs), and health reimbursement accounts (HRAs). They remain qualified if they are prescribed by a medical professional. The additional tax on nonqualified distributions from HSAs increases from 10% to 20%. For nonqualified distributions from an Archer Medical Savings Account (MSA), the additional tax increases from 15% to 20%. DRUG INDUSTRY FEE. An annual fee is assessed on drug manufacturers, starting at $2.5 billion in 2011 and increasing over the following years. 2012 NEW REPORTING REQUIREMENT. A new reporting requirement is imposed on businesses. Generally, a Form 1099 must be filed with the IRS for payments over $600 made to a corporation. Previous law required such reporting only for amounts over $600 paid to unincorporated businesses. 2013 FSA LIMITS. The amount that can be contributed to a health FSA is limited to $2,500 per year, indexed annually for inflation. MEDICAL EXPENSE DEDUCTION. The 7.5% income threshold for deducting unreimbursed medical expenses increases to 10% for those under age 65. Those 65 and older may continue to take an itemized deduction for medical expenses exceeding 7.5% of adjusted gross income through the year 2016. EXECUTIVE PAY LIMIT. The executive compensation deduction for certain health insurance companies is limited to $500,000 per year. MEDICARE TAX INCREASE. The payroll Medicare tax will increase from 1.45% of wages to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. The income threshold levels are not indexed for inflation. A new 3.8% Medicare tax will be imposed on unearned income for single taxpayers with income over $200,000 and married couples with income over $250,000. Examples of unearned income: interest, dividends, royalties, rental income. MEDICAL DEVICE TAX. A 2.3% excise tax is imposed on the sale of certain medical devices. 2014 COVERAGE REQUIRED. Starting in 2014, individuals who are not covered by Medicare, Medicaid, or other government health insurance are generally required to maintain health insurance coverage or pay a penalty. Penalties are calculated using a percentage of the taxpayer's income or a flat dollar amount. Subsidies and tax credits are available to help lower-income taxpayers pay for coverage. » Health insurance exchanges are established by states to enable people to comparison shop for coverage. » Large employers generally must provide coverage for employees or face penalties. » Tax credits increase for small businesses to provide coverage for their workers. HEALTH INDUSTRY FEE. An annual fee is assessed on the health insurance industry, starting at $8 billion in 2014 and increasing over the following years. 2018 TAX ON "CADILLAC" PLANS. Insurance companies will be assessed a 40% excise tax on health insurance plans with annual premiums exceeding $10,200 for individual coverage and $27,500 for family coverage. An increase in the threshold amount is allowed for retired persons who are age 55 or older (an additional $1,650 for single coverage and $3,450 for family coverage). These increased thresholds also apply for plans that cover those engaged in high-risk occupations. This massive package of legislation is certain to affect every taxpayer. For guidance in your individual and business tax planning under the often-complicated provisions in these two laws, contact our office. 2010 promises to continue to be filled with new tax laws, accounting standard changes and other developments you will want to know about. Bookmark the link below and visit often to stay up-to-date. As always, we are here to help. Please contact us at 847-267-9600 if you have questions or if you would like to get together to discuss your tax-cutting options. Visit www.waradydavis.com for additional information and articles of interest.
				Contact: Marc Heller, CPA, JD, Partner Warady & Davis LLP 847-267-9600 mheller@waradydavis.com www.waradydavis.com Disclaimer: Pursuant to Internal Revenue Service Circular No. 230, be advised that the information contained herein was not intended or written to be used and cannot be used by any taxpayer for the purpose of avoiding any Internal Revenue Code penalties that may be imposed on the taxpayer. It was written with the intent of disseminating general information related to the transaction(s) or matter(s) addressed herein.