The Patient Protection and Affordable Care Act

By: Karen Matticio, CPA (Jul, 2012)

On June 28, 2012, the Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act of 2010.  This Act includes the individual mandate that requires individuals to pay a penalty if they fail to carry minimum essential health insurance.  While much information on the Act has been out for two years, many have been waiting for a final decision from the Supreme Court. This is the law of the land today.  What tomorrow brings will ultimately depend on the elections in November.  Now is the time to start preparing for the upcoming changes that will be effective starting in 2013.  How will this impact you and your business?

The tax provisions within the Act include:

For 2012:

 -   Mandatory Form 1099 reporting for payments to corporations was repealed April 14, 2011.

 -   Reporting the value of employer-sponsored health insurance coverage on W-2s is not required for employers who filed fewer than 250 Form W2s for the prior calendar year.

For 2013:

 -   Additional .9% Medicare tax on wages and self-employment income of high-income individuals. High income individuals have income in excess of $200,000; for Married Filing  Jointly taxpayers over $250,000; Married filing Separate taxpayers over $125,000.

 -   Unearned income will be subject to a 3.8% Medicare contribution tax for Individuals with modified Adjusted Gross Income in excess of $200,000 and Married Filed Jointly over   $250,000.  Unearned income includes interest, dividends, annuities, royalties, rent, capital gains (including home sales in excess of the exclusion), and passive activity income.

 -   Increase in AGI limitation on medical expenses from 7.5% to 10% if taxpayer is itemizing deductions and is under the age of 65.

 -   Limits contributions to a flexible spending arrangement (Medical FSAs) to $2,500 and indexed for inflation after 2013.

 -   Excise tax of 2.3% on the sale of medical devices.  This does not include eyeglasses, contact lenses, hearing aids or other medical devices generally available for retail sale.

 -   Summary of Benefits and Coverage (SBC) to be provided at application for coverage, upon renewal or reissuance and upon request.  Employers should provide the SBC statement during the Fall 2012 health plan enrollment period.

For 2014:

 -   Individual Mandate will require individuals to carry minimum essential health coverage.  The penalty for not complying will be the greater of $695 or 2.5% of household income,  phased in over a three year period.

 -   Employer responsibility mandate if considered a large employer (average of 50 or more full-time equivalent employees in the preceding calendar year).  Subject to non-deductible fee of $2,000 per employee if they do not offer health insurance coverage to employees (the first 30 employees are not included in the calculation).

 -   Individual and Small Business Exchanges available for Health Insurance.  The Exchanges will have four levels of coverage for the consumer to select from.

 -   Increase in Small Employer Health Insurance Tax Credit percentages to 50% but the employer must participate in an insurance exchange in order to claim the credit.

For 2015 and 2016:

 -   No new mandates.

For 2017:

 -   Allow businesses with more than 100 employees to participate in the Exchanges.

For 2018:

 -   Cadillac tax includes a 40% excise tax on high-cost health coverage.


Employers have an opportunity at this time to analyze their health plan coverage and determine some key factors:

 -   Should the employer offer a plan or not?

 -   Is the current coverage a Grandfathered plan or not? Grandfathered plans are plans that existed as of
     March 23, 2010 and are subject to only some provisions of the Act. 

 -   Do they want to continue to keep the plan or make changes?

 -   Determine if the existing plan(s) meets qualifying and affordability standards.

 -   What are the costs of having a plan vs. not having a plan?

At Dermody, Burke & Brown, CPAs, LLC, it is our commitment to be your most trusted advisor. Our professionals are dedicated to keeping you informed about how the new health care environment will impact you and/or your business. Please contact your tax professional to assist you.


The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.

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