The Patient Protection and Affordable Care Act (aka health care reform) enacted in March 2010, is comprehensive legislation affecting taxes, insurance, Medicare and Medicaid, among others, and is to be implemented over an 8-year period. So what is on the horizon for 2011 and 2012 taxes?
For 2011, probably the most dreaded and misunderstood of all the implementations, was the requirement for employers to disclose on the employee’s Form W-2 (2011 to be issued by 1/31/2012), the value of the employee’s health insurance coverage sponsored by the employer. However, for 2011 this is optional for ALL employers, but in 2012 this is required for businesses that produce 250 or more W2′s. The delay was due to allowing businesses time to prepare their payroll systems in order to comply with the regulations.
Related to this rule, there have been numerous emails and other such “urban legends” circulating that claim that employer health coverage will be taxable—it is not true. Although it will be reported on Form W-2, in Box 12, with the code “DD,” the draft 2011 Form W-2 instructions specifically state, “The reporting in Box 12, using Code DD, of the cost employer-sponsored health coverage is for information only. The amount reported with Code DD is not taxable.” The reporting is a way for employees to see the total value of their health coverage, as well as prepare for government reporting of employee health insurance coverage that will be required of all individuals in 2014 under current provisions of the Act.
Other 2011 tax implications of the Act:
- Excludes the costs for over-the counter drugs not prescribed by a doctor from being reimbursed through a Health Reimbursement Account, Flexible Spending Account or Health Savings Account (HSA).
- Increases the penalty on distributions from a HSA that are not used for qualified medical expenses from 10% to 20% of the amount used.
Another reporting nightmare that was to have occurred in 2012, was the 1099 reporting of all payments aggregating $600 or more for services or property to all entities, including corporations. Fortunately, these increased reporting requirements were rescinded in early 2011; however, businesses will still have to report payments of $600 or more for services to all noncorporate entities, which is unchanged.
Please contact us if you have any questions regarding how the new tax provisions of the health care form bill affect you.
