New law offers opportunities for tax professionals
The landmark health care reform package is now the law of the land, with immediate and far-reaching tax implications. It is a unique opportunity for you to guide businesses and individual clients to assess its impact and take the right approach.
Mark Luscombe, CPA, LLM, JD, principal tax analyst for CCH, a Wolters Kluwer business, has tracked this legislation through all its peaks and valleys, and zeroes in on these key issues:
1. For 2010 through 2013, small businesses are eligible for a 35 percent tax credit for premiums paid for employee health coverage. A “small business” has no more than 25 employees and average annual wages less than $50,000. “To qualify, you can exclude company owners from the calculation,” Luscombe says.
2. Starting in 2014, large companies (50 or more workers) will be liable for an additional tax if they do not provide minimum essential coverage. Even if they provide minimum essential coverage, they may be subject to a penalty if any employees received premium assistance or cost-sharing to purchase health insurance through an insurance exchange.
3. Starting in 2014, individuals may be subject to an individual responsibility penalty for failure to maintain minimum essential health coverage. Lower-income individuals may qualify for a refundable premium assistance tax credit.
4. Starting in 2013, Medicare tax will be assessed on investment income for high-income individuals or families. Investment income includes interest, dividends, capital gains, rental income, royalties and passive business income. “In effect, that’s an additional 3.8 percent tax on net investment income,” Luscombe says. “Many analysts expect the top marginal rate to move up from 35 percent to 39.6 percent in 2011, an additional 4.6 percent tax increase. Top capital gain rates may also increase from 15 percent to 20 percent.” Planning tip: The definition of “investment” does not include tax-exempt bonds.
5. In addition to taxing investment income, the Medicare tax rate itself on earned income has increased by a third, from 2.9 to 3.8 percent, for higher-income individuals and families.
6. Starting in 2013, the legislation increases the adjusted gross income threshold for claiming an itemized deduction for medical expenses, from 7.5 to 10 percent. A temporary exemption is provided for senior citizens.
Action steps to take now: Invest the time necessary to become familiar with the legislation and to understand which of your clients are affected. “Work with your business clients to figure out if they are entitled to a credit or at risk of a penalty. And explore tax planning opportunities with high-income taxpayers,” Luscombe says.
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This story is from the CCH e-newsletter First Choice, written specifically for tax, accounting and audit professionals. First Choice offers tips, tricks and ideas about how to increase your public accounting firm’s productivity and efficiency. Every issue also features insights with a tax, audit or accounting professional.