New Delay in Employer Mandate

For the second time, the employer mandate (shared responsibility provision) has been delayed by President Barack Obama.  The employer mandate, a regulation intended to regulate businesses on January 1, 2014, had been pushed back until 2015.  Yesterday, the Treasury Department issued a new regulation delaying it for some businesses until 2016.  The intended purpose of this delay is to provide a more gradual phase-in and assist employers to whom the policy applies. 

 As stated in the Patient Protection and Affordable Care Act (PPACA), the employer mandate imposes fines on large employers (50+ FTE employees) who fail to offer their full-time employees a health plan with minimum essential coverage or have a waiting period greater than 60 days (Sec. 1513, as modified by section 10106). 

 The original effective date of this section (December 31, 2013) changed on July 2, 2013, and now new changes move that date again.  The Treasury Department issued a fact sheet explaining the new declaration changes.  A link to the fact sheet, entitled Final Regulations Implementing Employer Shared Responsibility Under the Affordable Care Act (ACA) for 2015, is below.

 The fact sheet states that employers with 50 or more full-time employees will have to comply by 2016; employers with 100 or more full-time employees will still have to comply by 2015.  To avoid paying a fine for failiing to offer health coverage, employers will now need to offer coverage to 70 percent of their full-time employees in 2015 and 95 percent in 2016 and beyond.  Initially, 95 percent had been required for all emloyers in 2015.  Further, employers that are subject to the shared responsbility provisions in 2015 must offer coverage to at least 70 percent of full-time employees as one of the conditions for avoiding an assessable payment, rather than 95 percent (which will be mandated in 2016 for all employers).

We will continue to monitor all aspects of PPACA and provide you with the best strategies and advice during the implementation.  Please let us know if you have any questions.

http://www.treasury.gov/press-center/press-releases/Documents/Fact%20Sheet%20021014.pdf

 Kind Regards,

Gretchen

Flex Spending Account Rule Change

Recently new changes were implemented for Health Care Flex Spending Accounts (FSA). Per the new changes, at each company’s discretion, they can elect to include the Health Care FSA carryover to a maximum of $500 per year. The election must be submitted no later than December 31, 2013.

 Here are some key points regarding the new FSA guidelines:

  • The Health Care FSA carryover in not mandatory and an employer/plan sponsor must elect to amend the FSA plan to include the carryover
  • The new rules go into effect for plan years ending on or after December 31, 2013
  • An employer cannot offer both the carryover and grace period to plan participants.  If an employer currently offers the 2 ½ month grace period, they must amend their plan to remove the grace period and then add the carryover feature
  • Employee salary reductions and employer contributions can be applied to the carryover amount.  Any funds remaining at the end of the plan year can be considered for carryover
  • An employee does not have to make an election the following year to have funds carry over.  If an employer elects to have the carryover feature added to the plan, and a participant has funds remaining, a new plan year is automatically created for that participant. 
  • A maximum of $500 can be rolled over from one plan year to the next

 Let us know if you need more information on the new FSA guidelines.  Thank you!

Sincerely,

Stafford Financial Consulting Group, LLC.

2501 W Beltline Highway, #201

Madison, WI  53713

W (608) 441-3035 

F (608) 441-3036

Federal Tax Changes in 2013

ImageIn our effort to provide our clients with accurate, up-to-date information, we went through some of the key changes in 2013 for federal taxes.  Here’s a few of the major ones we wanted to ensure our clients were aware of.  Additionally, it’s been in the news quite a bit lately that employees are noticing a “smaller” paycheck in 2013.  Take note of the increase in the employee portion of the Social Security tax.

Social Security/Medicare:

Social Security Tax Wage Base 

  • 2012: $110,100
  • 2013: $113,700

Employee Portion of Social Security

  • 2012: 4.2%
  • 2013: 6.2%

Driving Deductions:

Business Mileage, Per Mile

  • 2012: 55.5 cents
  • 2013: 56.5 cents

Transportation Fringe Benefit Exclusion:

Monthly Commuter Highway Vehicale and Transit Pass

  • 2012: $240
  • 2013: $245

Monthly Qualified Parking

  • 2012: $240
  • 2013: $245

Standard Deduction:

Married Filing Jointly

  • 2012: $11,900
  • 2013: $12,200

Single (& Married Filing Separately)

  • 2012: $5,950
  • 2013: $6,100

Heads of Household

  • 2012: $8,700
  • 2013: $8,950

Estate Tax:

Federal Estate Tax Exemption

  • 2012: $5.12 million
  • 2013: $5.25 million

Annual Gift Exclusion:

Amount You Can Give Each Recipient

  • 2012: $13,000
  • 2013: $14,000

Tax Provisions – Take Note!

Our office is contantly tracking and making note of all regulations and reading and researching proposed regulations.  Here’s a couple of high importance to make note of today:

Net Investment Income Tax

  •  New Net Investment Income Tax goes into effect in 2013
  • 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts
  • IRS and the Treasury Department have issued proposed regulations on the Net Investment Income Tax

Minimum Value

  • On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value
  • In 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment

Changes to Flexible Spending Accounts

  • In 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules and requests comments about other possible administrative changes to the rules on FSA contributions.
  •  This notice provides guidance on the effective date of the $2,500 limit (as indexed for inflation) on salary reduction contributions to health flexible spending arrangements (health FSAs) under § 125(i) of the Internal Revenue Code (Code) (the $2,500 limit) and on the deadline for amending plans to comply with that limit.

Medical Device Tax

  •  On Dec. 5, 2012, the IRS and the Treasury Department issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013
  • On Dec. 5, 2012, the IRS and the Treasury Department also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax. Additional information is available on the Medical Device Excise Tax page and Medical Device Excise Tax FAQs on IRS.gov

Health Insurance Premium Tax Credit

  •  Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. Exchanges will operate in every state and the District of Columbia
  • Premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums
  • May 18, 2012, the IRS issued final regulations which provide guidance for individuals who enroll in qualified health plans through Exchanges and claim the premium tax credit, and for Exchanges that make qualified health plans available to individuals and employers
  • The portion of the law that will allow eligible individuals to use tax credits to purchase health coverage through an Exchange is not effective until 2014

Employer Shared Responsibility Payment

  •  Starting in 2014, certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Dec. 28, 2012, the Treasury Department and the IRS issued proposed regulations on the Employer Shared Responsibility provisions

Questions?  Let our office know!  These are just a few of the tax provisions that can effect your business. 

The Fiscal Cliff

Congress quickly approved and passed a fix to the fiscal cliff on January 1, 2013.  Several of the changes have direct effects on Wisconsin’s businesses.   

Wisconsin Manufacturers and Commerce relased a good breakdown of those changes, and here is a brief description of what you are going to see in 2013. 

Individual Income Tax Rates The previous top bracket of 35% was permanently increased to 39.6% for individuals earning more than $400,000 and $450,000 for married couples.  The four lower brackets were all permanently extended (10%, 25%, 28%, and 33%) while the 15% bracket remains in place.  These changes all apply for 2013.

In addition, the federal Affordable Care Act (ACA) tax increase of 0.9% on income above $200,000 for individual income and $250,000 for married couples also takes effect in 2013.

Individual Income Tax Phase-Outs Two of the earlier lesser-known tax cuts were the elimination of personal exemption phase-outs (“PEPS”) and limits on itemized deductions (known as “Pease”).  In 2013, taxpayers earning $250,000 as individuals or $300,000 as married couples will again be subject to these provisions.  These changes are effective tax increases that will generate literally billions for the federal government.

Investment Income Taxes For those earning $400,000 as individuals or $450,000 as married couples, rates on capital gains and dividends will increase to 20% in 2013 from the prior 15% rate.  Those with lesser incomes will retain the two present rates of 0% (which applies to those in the 10% and 15% individual income brackets) and 15% (for those in the other brackets up to the new 39.6% bracket).  All of these rates were permanently extended.

In addition, the ACA tax increase of 3.8% on capital gains and dividends takes effect in 2013 for those earning $200,000 as individuals or $250,000 as married couples.

Estate Tax (Death Tax) The $5 million per person exemption and inflation indexing in current law were extended permanently, but the top rate was increased to 40% from 35%.  Portability of the unused exemption (allowing a spouse to claim any unused exemption from the deceased) and unifying the estate and gift taxes were both made permanent.  These changes take effect in 2013.

Permanent AMT Patch The alternative minimum tax (AMT) is finally being indexed for inflation.  Developed in the 1970s to ensure those with high incomes couldn’t avoid taxation under the normal tax structure, the AMT was not previously indexed for inflation and impacted an increasing number of taxpayers.  A higher exemption amount was adopted for 2012 along with indexing for inflation.  Both of these changes were made permanent.  This is a significant improvement for many taxpayers.

Business Tax Incentives The research and development tax credit was finally restored for 2012 and extended for 2013.  Extending the credit will again be considered by Congress later this year as it was not made permanent.

The Section 179 expense deduction and bonus depreciation were also extended.  The maximum amount of the Section 179 deduction was increased to $500,000 and the investment limit was raised to $2 million for 2012 and 2013.  These are the same limits that existed in 2010 and 2011.

The existing 50% bonus expensing provision for property purchased and placed into service during 2012 was extended through 2013.  The allowance extends an additional year (through 2014) for certain long-term and transportation assets.

Social Security Payroll Tax After a “holiday” of employees being taxed 4.2% instead of the regular 6.2% employee share of Social Security taxes in 2011 and 2012, the payroll tax reverts back to the normal rate for 2013.

Aside from these major tax changes, a wide array of small changes were adopted that could be of interest to narrow investments, hires, or employee benefits.

Many businesses previously ineligible for credits may now be able to claim them due to the confluence of the higher top income rate, the income tax phase-outs, and 2012 AMT relief.  You should meet with your accountant and discuss these changes before filing your 2012 tax returns.

Finally, for the many Wisconsin manufacturers who export goods or components for foreign-made goods, major tax savings may be realized under a federal incentive known as IC-DISC.  That stands for Interest Charge Domestic International Sales Corporation.  Using an IC-DISC may allow the tax liability on 50% of export income to be reduced by nearly half by taxing profits at the dividend rate rather than ordinary income.  Figuring in the fiscal cliff and ACA tax increases for 2013, dividends will be taxed at 20% plus the 3.8% ACA tax while ordinary income will be taxed at 39.6% plus the 0.9% ACA tax. 

As you can see, the recent changes by President Obama and Congress have not resulted in any tax simplification nor rate reductions (other than avoiding increases at the lower tax brackets).  Given the two month deferral of the spending cuts now set to take effect in March and the federal government reaching its debt limit again, the battle over taxes and spending is likely to rekindle again before spring arrives.

Do I have to buy broccoli?

Yesterday, the Supreme Court heard arguments regarding the penalty individuals will have to pay if they do not purchase health insurance in 2014.  Arguments were presented debating whether or not the Anti-Injunction Act barred this litigation.  If the AIA applies, the penalty will be viewed as a tax and the Supreme Court cannot hear arguments until 2015, when the first individual person is actually fined this tax by the government for failure to purchase individual health insurance in 2014.  The penalty is paid to the IRS through the individual’s 2014 tax filing, which occurs in 2015.

It appears the Supreme Court is going to rule that the penalty is just that – a penalty.  This will allow them to get to the heart of the matter and rule on whether or not the individual mandate is constitutional.  Those arguments are being heard today.

Today, the Supreme Court’s conservative justices are laying into the Obama Administration’s healthcare law that Americans must have health insurance.  The Administration’s top attorney barely got 3 minutes into his argument before being bombarded by questions by the conservative justices. 

Justice Kennedy is the conservative justice that many PPACA opponents fear will side with the Obama Administration on the individual mandate issue.  Although his questions cannot necessarily predict how he will rule, he interrupted the Adminstration’s top lawyer this morning stating, “Are there any limits?”  Fellow conservative justices followed with similar questions.  Chief Justice Roberts suggested that the government might require Americans to buy cellphones to be ready for emergencies. And Justice Scalia asked if the government might require Americans to buy broccoli or automobiles. 

Justice Scalia added, “If the government can do this, what else can it … do?”

Currently, there are four liberal justices and five conservative justices.  The four liberal justices are assumed to all support the individual mandate.  In addition to Justice Kennedy, justices Roberts and Scalia are also seen as two of the five conservative justices possibly ruling the mandate constitutional.  Today,  all three of those conservative justices repeatedly criticized the requirement to buy health insurance as forcing people to enter a market, which they said was a new and troubling use of federal power. 

The Supreme Court is expected to rule in June on the consitutionality of the individual mandate.  More to come.

Supreme Court to Hear Arguments Monday

Image

On Monday, the Supreme Court will begin hearing oral arguments on Obama’s health care overhaul.  The arguments will be heard from Monday through Wednesday, for a total of six hours.  People can only speculate if the Court will uphold the law or strike it down in its entirety.     

But those aren’t the only the two options.  There are numerous potential outcomes that fall somewhere between upholding it and striking it down in its entirety.  Here are six potential outcomes:

1) The Supreme Court upholds the law and finds that Congress was in its authority to require most people to have health insurance or pay a penalty.  This would end the legal fight, but the contentious presidential election would only be ignited by this ruling. 

2) The Supreme Court strikes down the law in its entirety.  The law would not proceed, and some elements that have already been enacted could be rolled back.  Everyone would be sent back to the drawing board to propose a new solution for increasingly high health care costs and the rising number of uninsured.

3) The Supreme Court strikes down the individual mandate, but leaves the rest of PPACA in place.  Ten  to 15 million fewer people intended to get coverage under the law would no longer get coverage.  In 2014, employers with more than 50 full-time employees would still face fines for not insuring those employees.  Insurance companies could no longer deny applicants with pre-existing conditions.  This could result in premiums skyrocketing.  The market could potentially collapse; at the very least coverage would be drastically more expensive then it is now.

4) The Supreme Court strikes down the individual mandate and the piece of PPACA requiring insurance companies to cover people with pre-existing conditions.  The market would see a less dramatic financial hit.  Insurers could continue to screen people out with pre-existing medical conditions.  This would also allow insurance companies to charge older people higher premiums – something PPACA would prevent them from doing.

5) The Supreme Court only throws out the expansion of the Medicaid program.  This would seriously limit the affect of the new law because it is estimated that 15 million of people gaining coverage would be gaining that coverage through the expansion of the Medicaid program.  The law would bring under Medicaid anyone making up to 138 percent of the federal poverty level; most would be low income adults without children.  States suing to overturn the federal law argue that Medicaid expansion comes with so many strings attached to it that it amounts to an unconstitutional power grab.

6) The Supreme Court rules that the constitutional challenge is premature.  The Court could rule that no one can sue until someone is actually charged a fine for not purchasing insurance.  The Federal Anti-Injunction Act states that federal courts may not hear challenges to taxes until after they are paid.  This would allow the current administration to continue to put the law in place as written and force postponement of any challenge until a fine is imposed.   

(excerpts taken from AP Mark Sherman 3/20/12)

What Happened to www.­freemarkethealth­care.­wi.­gov?

What exactly is going on with Wisconsin’s health care exchange?  It is a good question, and one that can’t easily be answered.  2012 will see a Wisconsin gubernatorial election and a Presidential election.  Does it make sense to take a “wait and see” approach before accepting federal funds and establishing a health care exchange?  That is the key question.  And for now, with Walker remaining in office through at least June, that seems to be our state’s approach. 

As of yesterday, only 14 states have established health care exchanges,  4 have plans to establish, 23 are studying options, 8 have no significant activity, and 2 – Arkansas and Louisiana – have decided not to create them (Kaiser Family Foundation State Health Facts).  In total, the federal government has distributed $602,636,385 in grants. 

Under the previous Doyle Administration, Wisconsin accepted $1 million in federal funding to begin developing its exchange.  The federal government considered Wisconsin an “Early Innovator” because of its initial steps in establishing an exchange.  Governor Walker issued Executive Order #10 and transformed former Governor Doyle’s Office of Health Care Reform into the Office of Free Market Health Care (OFMHC).  Even more recently, Governor Walker issued Executive Order #57, replacing Executive Order #10, effectively discontinuing any work on the exchange in Wisconsin.  

Now, it appears that the website for OFMHC – www.freemarkethealthcare.wi.gov –  is no longer functioning and Wisconsin has since rejected $38 million in “Early Innovator” federal grants.  Wisconsin has officially discontinued any work on its exchange and now denies “Early Innovator” status. 

If Walker stays in office and if the Supreme Court upholds PPACA in its entirety, Wisconsin will have until 1/1/13 to have a fully operational exchange.  Enrollment will have to begin 10/1/13.  Otherwise, the federal government will take control of Wisconsin’s exchange (in some form). 

With all of the uncertainty surrounding the exchanges, we will have to join Wisconsin (and the rest of the country) and wait and see what happens this summer. 

To be continued…

Health Care Reform in 2012

2012 is a huge year for Health Care Reform.  It’s an election year and the Supreme Court will hear oral arguments and rule on the constitutionality of the individual mandate.  People remain incredibly confused by WHAT is supposedly happening WHEN.

Recently, the Washington Post published an excellent article regarding 2012 and Health Care Reform.  The article, entitled “Five Health Care Reform Dates to Watch in 2012,” referred to the following five Health Care Reform events in 2012: 

1) January 1: the ACOs went live.  The Accountable Care Organization regulations, health reform’s big attempt to bring down the cost of health care by paying for quality of care, rather than just quantity. On Jan. 1, 32 health-care systems went live as Accountable Care Organization “pioneers,” and will begin accepting a flat fee for all care related to a small group of their Medicare patients. Their experiment could end fee-for-service medicine — or, if it fails, send lawmakers back to the drawing board.

2) March 26: The Supreme Court hears oral arguments on the Affordable Care Act.  Primarily, the Court will hear arguments on whether or not the individual mandate is constitutional.  If it is ruled unconstitutional, the Court will have to rule if the rest of the law still stands.  A ruling is anticipated in June.

3) October 1: Medicare payment reforms.  New “value-based purchasing” policies start tying hospitals’ Medicare payments to performance metrics. Another regulation will ding hospitals for patients that are readmitted for a complication that could have been prevented, a bid to reduce unnecessary medical errors that lead to higher costs.

4) November 3: The 2012 election.  As Harvard’s David Blumenthal wrote recently in the New England Journal of Medicine, 2012 will be a “watershed election for health care.”  Republican control (of the Presidency and Congress) could lead to an attempted dismantling of the Affordable Care Act.  Democratic retention could almost guarantee the implementation of much of the Affordable Care Act. 

5) December 31: The exchange deadline.  Exchanges are set to begin in 2014.  By December 31, states will have had about three years to begin implementation, accept funding, and create models.  By December 31, the state must have the Obama administration certify that they’ve made enough progress to launch their exchange marketplace in 2014.  If states fails this certification, the federalgovernment will step in and control the marketplace in that state.      

2012 HSA and FSA Updates

Your HSA and FSA plans have a couple small changes coming in 2012. 

Health Savings Accounts (HSA)  are tax-advantaged medical savings accounts available to taxpayers who are enrolled in an HSA-qualified high-deductible health plan. The funds contributed to the account are not subject to federal income tax at the time of deposit. Unused amounts in one year can be carried over to following years and added to subsequent contributions.  A single deductible must be at least $1,200 and a family deductible must be at least $2,400.

In 2012, contribution limits and max out-of-pocket limits will change slightly.  Individual contribution limits will be $3,100.  Family contribution limits will be $6,250.  Out of pocket maximums will be $6,050 for individuals and $12,100 for families. 

Keep in mind that this year, you are no longer able to use your HSA or FSA to purchase over the counter medications (except for insulin) without a prescription.  The penalty for withdrawing funds for non-medical reasons increased from 10% to 20% in 2011 as well. 

Flexible Savings Accounts (FSA) are tax-advantaged accounts that allow an employee to set aside a portion of earnings to pay for qualified medical expenses.  Funds in the account that are unused when the plan year is over are lost and cannot be carried over to the following year.

Flexible Saving Accounts (FSA) will see the biggest change in 2013.  In 2013, annual contributions will be limited to $2,500.  In 2012, there are still no limits.  However, employers will place a limit on the amount employees are allowed to contribute.  This can be a maximum dollar amount or a maximum percentage of compensation.