Dear Client:
Now that President Obama has signed into law the landmark health care package, the Patient Protection and Affordable Care Act, much work needs to be done in dealing with its requirements. While the end result of the new law is necessarily health-care related, the tax law plays a major role in its implementation. From the tax credits and subsidies used to expand health coverage, to the many penalties, fees and surtaxes designed to pay for it, the Tax Code is front and center.

Over the course of the next few months, the IRS and other agencies will be filling in details on how to comply with all the provisions under the massive Patient Protection Act. Congress, in fact, is already in the process of fine-tuning the new law through a Health Care and Education Tax Credits Reconciliation Bill. This office will be staying on top of all developments, with an eye toward how to best maximize results under the new law for our clients.

Viewing the historic Health-Care Reform package from the context of the Tax Code, several new taxes and penalties stand out immediately above the rest. Initially, we would advise taking particular note of the following highlights:

• Individuals who earn more than $200,000 for the year ($250,000 for couples) will be paying an additional 0.9 percent in Hospital Insurance (Medicare) tax and an additional 3.8 percent Medicare tax on investment income, starting in 2013;
• Employers with 50 or more employees generally will be required to provide a minimum level of health insurance for their employees or pay a penalty per employee, starting in 2014;
• Small employers with no more than 25 employees are entitled to up to a 35 percent tax credit on the cost of providing health insurance for employees, starting immediately in 2010;
• Most individuals will be required to obtain health insurance or be subject to a penalty tax starting in 2014;
• Tax credits to subsidize the cost of health insurance premiums will be available to individuals earning up to 400 percent of the poverty level, starting in 2014;
• A 40 percent excise tax will be imposed on high-cost employer-sponsored health coverage, starting in 2018;
• Fees will be imposed on the pharmaceutical and medical device industries, starting in 2011 and 2012, respectively; and
• Limits on tax-subsidized medical expenses will be imposed by raising the itemized medical expense deduction floor from 7.5 percent to 10 percent, generally starting in 2013, along with placing a $2,500 annual cap on expenses covered under flexible spending accounts, starting in 2011.

Among a handful of tax benefits provided under the new health-care reform package, two are particularly notable at this time: (1) the ability of parents to cover adult children up to age 27 under their tax-qualified employer-provided health plans, starting immediately on or after March 23, 2010; and (2) the unveiling of a simplified cafeteria plan specifically tailored to small businesses, starting in 2011.

The new Health-Care Reform Law covers thousands of pages of legislative text. Over the next several months, much more will be added to the initial law in the form of IRS rules and regulations, as well as those imposed by the U.S. Labor Department and other federal agencies. Our office will monitor these developments. We are prepared to advise our clients on all compliance rules and tax-reduction opportunities that undoubtedly will arise. In the meantime, if you have any questions about the new law, please do not hesitate to call our office.

Sincerely yours,
Duggan & Massey