The Affordable Care Act is funded through a number of taxes and fees collected from the health care sector, employers and some taxes on high-income individuals. With these fees come tax credits for small business owners which could include physicians in their roles as employers and as individual taxpayers. Below is a brief synopsis of the fees and credits that may impact you and your practice as the ACA reaches full implementation.
Individual Penalties and Subsidies
- Individual Mandate: Individuals must obtain minimum essential coverage for themselves and their dependents, effective 2014, with limited exceptions. Those without coverage will pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085) per family, or 2.5 percent of household income. The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee; or 1.0 percent of taxable income in 2014, 2.0 percent in 2015, and 2.5 percent in 2016.
- Medicare Payroll Tax: Effective 2013, the Medicare Part A payroll tax will increase by 0.9 % on workers earning more than $200,000 and joint filers earning more than $250,000. In addition, a 3.8 % Medicare tax will be imposed on net investment income from interest, dividends, annuities, royalties, rents and taxable net gain for these same individuals.
- Deductions for Medical Expenses: Beginning in 2013, the threshold for claiming the itemized tax deduction for unreimbursed medical expenses will increase from 7.5 to 10% for those under 65. The increased threshold applies to individuals 65 years and older in 2017.
- Flexible Savings Accounts: Contributions are capped at $2,500 beginning in 2013.
Employer Penalties and Subsidies
- Employers of 50 or less are exempt from the requirement to provide health coverage.
- Large Employers: Beginning in 2014, Employers with over 50 FTEs that do not offer coverage and have at least one FTE who obtains coverage through an exchange and qualifies for an individual tax credit or subsidy will be assessed $2,000 multiplied by the number of full-time employees in excess of 30. If an employer offers coverage but has at least one employee who is entitled to a tax credit because the employer’s plan is too costly, the penalty is $3,000 for each employee receiving a credit or $2,000 for each full-time employee, whichever is less.
- Subsidies for Small Businesses: Small business tax credits will be available to employers with 25 or fewer employees with average annual wages below $50,000 if they purchase health insurance for their employees. For tax years 2010 through 2013, the credit can be up to 35% of the employer’s contribution toward the premium, provided the employer contributes at least 50% of the total premium cost. According to the IRS, the wages and hours of physician business owners and partners will not be counted in calculating either the number of full-time employees or the average annual wages.
- Medicare Part D: Effective 2013, employers that currently sponsor retiree prescription drug plans will no longer be able to deduct amounts contributed. However, future Medicare Part D subsidies will remain tax-free to the employer.
- Health Insurance Company Compensation: Effective 2013, the deduction for executive and employee compensation for health insurance providers is limited to $500,000 per applicable individual.
Health Care Sector Taxes and Fees
- Annual fee on Health Insurance Providers: Beginning in 2014 a fee will be applied to the net premiums of all health insurers based upon their share of the market. Assessments for non-profit insurers will be based upon half of their net premiums and those with high levels of government funding will be completely exempt from the fee. However plans who simply underwrite government programs will not be exempted.
- Annual fee on Pharmaceutical Companies and Medical Device Manufacturers: These fees will begin in 2011 and are based upon annual sales figures. Specific revenue targets are set for each year of implementation. By 2013, an annual 2.3 % tax will be placed on Class I medical devices by manufacturers, producers or importers. This includes most orthotics and prosthetics, as well as durable medical equipment. Eyeglasses, contact lenses and hearing aids are all exempted.
- Excise Tax on High Cost Health Plans: Beginning in 2018, a 40% excise tax will be imposed on insurers of high-cost, employer-sponsored health plans with aggregate values exceeding $10,200 for individual coverage and $27,500 for family coverage. Employers that make contributions to a health savings account (HSA) or medical savings account (MSA) must pay the excise tax if those contributions exceed the thresholds.
- Student Loan Tax Relief: Payments made under any state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas will be excluded from gross income.