Experience is the Difference®

Red stamp letters - ExpiredMost of the talk about possible tax legislation this year has focused on either wide-sweeping tax reform or taxes that are part of the Affordable Care Act. But there are a few other potential tax developments for individuals to keep an eye on.

Back in December of 2015, Congress passed the PATH Act, which made a multitude of tax breaks permanent. However, there were a few valuable breaks for individuals that it extended only through 2016. The question now is whether Congress will extend them for 2017. 

An education break

One break the PATH Act extended through 2016 was the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction was capped at $4,000 for taxpayers whose adjusted gross income (AGI) didn’t exceed $65,000 ($130,000 for joint filers) or, for those beyond those amounts, $2,000 for taxpayers whose AGI didn’t exceed $80,000 ($160,000 for joint filers).

You couldn’t take the American Opportunity credit, its cousin the Lifetime Learning credit and the tuition deduction in the same year for the same student. If you were eligible for all three breaks, the American Opportunity credit would typically be the most valuable in terms of tax savings.  
But in some situations, the AGI reduction from the tuition deduction might prove more beneficial than taking the Lifetime Learning credit. For example, a lower AGI might help avoid having other tax breaks reduced or eliminated due to AGI-based phaseouts.  

Mortgage-related tax breaks

Under the PATH Act, through 2016 you could treat qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. The deduction phased out for taxpayers with AGI of $100,000 to $110,000. 

The PATH Act likewise extended through 2016 the exclusion from gross income for mortgage loan forgiveness. It also modified the exclusion to apply to mortgage forgiveness that occurs in 2017 as long as it’s granted pursuant to a written agreement entered into in 2016. So even if this break isn’t extended, you might still be able to benefit from it on your 2017 income tax return.

Act now

Please check back with us for the latest information. In the meantime, keep in mind that, if you qualify and you haven’t filed your 2016 income tax return yet, you can take advantage of these breaks on that tax return. The deadline for individual extended returns is October 16, 2017.

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Affordable Care Act - written across a computer screenNow that the bill to repeal and replace the Affordable Care Act (ACA) has been withdrawn and it’s uncertain whether there will be any other health care reform legislation this year, it’s a good time to review some of the tax-related ACA provisions affecting businesses:

Small employer tax credit. Qualifying small employers can claim a credit to cover a portion of the cost of premiums paid to provide health insurance to employees. The maximum credit is 50% of premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium.

Penalties for not offering complying coverage. Applicable large employers (ALEs) — those with at least 50 full-time employees (or the equivalent) — are required to offer full-time employees affordable health coverage that meets certain minimum standards. If they don’t, they’re charged a penalty if just one full-time employee receives a tax credit for purchasing his or her own coverage through a health care marketplace. This is sometimes called the “employer mandate.”

Reporting of health care costs to employees. The ACA generally requires employers who filed 250 or more W-2 forms in the preceding year to annually report to employees the value of health insurance coverage they provide. The reporting requirement is informational only; it doesn’t cause health care benefits to become taxable. 

Additional 0.9% Medicare tax. This applies to:

  • Wages and/or self-employment (SE) income above $200,000 for single and head of household filers, or
  • Combined wages and/or SE income above $250,000 for married couples filing jointly ($125,000 for married couples filing separately).

While there is no employer portion of this tax, employers are responsible for withholding the tax once an employee’s compensation for the calendar year exceeds $200,000, regardless of the employee’s filing status or income from other sources. 

Cap on health care FSA contributions. The Flexible Spending Account (FSA) cap is indexed for inflation. For 2017, the maximum annual FSA contribution by an employee is $2,600.

There’s also one significant change that hasn’t kicked in yet: Beginning in 2020, the ACA calls for health insurance companies that service the group market and administrators of employer-sponsored health plans to pay a 40% excise tax on premiums that exceed the applicable threshold, generally $10,200 for self-only coverage and $27,500 for family coverage. This is commonly referred to as the “Cadillac tax.”

The ACA remains the law, at least for now. Contact us if you have questions about how it affects your business’s tax situation.

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On December 13, President Obama signed into law the 21st Century Cures Act, a package of health care legislation that includes a provision that eliminates a tax penalty on small employers that reimburse employees for the cost of health insurance premiums through qualified health reimbursement arrangements (HRAs).

Under the new law, employers that are not classified as applicable large employers (i.e., have more than 50 full-time employees), and are thus not subject to the employer mandate under the Affordable Care Act (ACA), are permitted to compensate employees for the cost of individual insurance premiums or medical visits through HRAs without incurring penalties, provided the employer does not offer a group health plan to any of its employees. The accounts must, however, meet certain criteria. For example, a qualified small employer HRA must be funded solely by an eligible employer, and no salary reduction contributions are permitted under the arrangement. The HRA must also provide for the payment of an eligible employee’s expenses for medical care that are incurred by the eligible employee or the eligible employee’s family members. The maximum reimbursement under the plan is capped at $4,950, or at $10,000 if the plan provides for the employee’s family members.

Moreover, to qualify as a small employer HRA, the arrangement must be provided on the same terms to all eligible employees. However, the act allows benefits under the arrangement to vary based on age and family size variations in the prices of insurance policies in different individual health insurance markets.

In Notices 2013-54 and 2015-17, the IRS had stated that HRAs are employer payment plans that fail to satisfy the market reforms that apply to group health plans under the ACA, and are therefore subject to the excise tax in Sec. 4980D of the Internal Revenue Code. These market reforms include the prohibition on annual limits for essential health benefits and the requirement that the employer provide certain preventive care without cost sharing. Sec. 4980D imposes an excise tax of $100 per day per affected participant (or $36,500 per year, per employee) on health insurance employer payment arrangements that do not comply with the market reforms. In Notice 2015-17, the IRS explicitly recognized that in the past small employers have often provided health coverage for their employees by paying directly or reimbursing the cost of premiums for individual policies, and that such employers “may need additional time to obtain group health coverage or adopt a suitable alternative.” The notice thus provided limited transition relief from the assessment of the excise tax for these small employers.

In addition, the legislation coordinates the new exclusion with the Sec. 36B health insurance premium credit to stipulate that employees that are covered by a qualified small business HRA are not eligible for subsidies for health insurance purchased under an exchange during the months that they are covered by the HRA. The new rules apply to years beginning after December 31, 2016, and the transition relief under Notice 2015-17 will be treated as applying to any plan year beginning on or before December 31, 2016.

The National Federation of Independent Business (NFIB) issued a statement praising the passage of the bill. “Both the Senate and the House have now passed critical legislation to protect small business owners from outrageous IRS fines,” said NFIB president and CEO Juanita Duggan. “Our research showed that a significant percentage of NFIB members reimbursed employees for the cost of health insurance, a practice the IRS tried to stamp out despite the lack of clear direction from Congress. Now Congress has acted to make it clear that businesses should not be punished just for trying to help their employees pay for health care costs.”


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A recent survey by a professional services firm indicates that 49% of employers plan to use the same approach to filing Affordable Care Act (ACA) forms as they used last year. If you're required to file health care information returns for 2016, be sure to review your recordkeeping system. You'll need to give the forms to your employees by January 31, 2017. Paper forms are due to the IRS by February 28, 2017. When you file electronically, the due date for ACA forms is March 31, 2017.

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Don Bromley recently spoke with Christi Milligan, Senior Staff Writer for the Delaware Business Timess, about how delays in tax codes impact business owners now.    

Their clients may not have been blindsided, but with some renewal premiums going up as much as 100 percent, Delaware accountants admit that the brass tacks of the Affordable Care Act (ACA) are sobering. 

Funneling concerns to their most trusted insurance brokers, accountants are busy with other fine points of the ACA initiative:  The new 0.9 percent Medicare surtax and the 3.8 percent tax on net investment.

Read the full article here.



Experience is the Difference®

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