Obamacare - Let's Talk Tax Credits

The Republicans all morning have been talking about the tax implication of Obamacare.

This all started when Jeff Landry hit the newswire for the Republicans after the decision:

Rep. Jeff Landry, R-La., speaking on the steps of the Supreme Court after a 5-4 ruling upholding the individual mandate as a tax, told a crowd of protesters and counter protesters that the individual mandate is now “the largest tax increase” in U.S. history.

And the Republicans are grabbing onto that mantra – as if their life with the right wing base depended on it.

Let’s look at some tax implications of implementation of Obamacare – that the Republicans ARE NOT talking about.

Some have already been implemented – but you don’t hear the Repubs talking about that (except for the tax increases on corproations and the 1% I will note below.)

Directly from the IRS webpage:

Small Business Health Care Tax Credit

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers.  The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

An estimated 3.9 million small businesses nationwide will qualify for the tax credit.

Here’s the talking points on this one:

Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15 percent credit, you save … $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.

There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

And finally, if you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.

And there is this clarification

Provides sliding scale tax credits to small employers with fewer than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees. The full credit will be available to employers with 10 or fewer employees and average annual wages of $25,000 or less, and the credit amount phases down for employers with more employees or higher average wages.

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. The 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.

So what?

These new premium tax credits will offset a significant portion of the cost of health insurance premiums. The unique tax credit will be calibrated to ensure that individuals and families do not have to spend an excessive share of their income on premiums.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in

Box 12

, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability,

Now maybe working Americans - who have benefits - will start appreciating the health benefits provided for them by their employers.  Benefits - by the way - they wouldn’t have – if it had not been for the unions fighting for health benefits for their members.

Adoption Credit

The Affordable Care Act raises the maximum adoption credit to $13,360 per child, up from $13,170 in 2010 and $12,150 in 2009. The adoption tax credit is refundable for tax year 2011, meaning that eligible taxpayers can get it even if they owe no tax for that year.

Qualified Therapeutic Discovery Project Program

This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance describes the application process.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS.

Medical Loss Ratio (MLR)

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012.

This returns money to the consumer!

In 2012

More than 3 million health insurance policyholders and thousands of employers will share $1.3 billion in rebates this year, thanks to President Barack Obama’s health care law, according to a nonpartisan research group.

BUT - there are tax increases that do hit the Republican donors/owners.

This is what they are probably screaming and whining about.

Proposed Regulations Issued on Medical Device Excise Tax

On Feb. 3, 2012, the IRS and the Treasury Department issued proposed regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of taxable medical devices starting in 2013.

Here’s the talking points on this one:

35% of medical devices/surgical equipment identified in the OTE survey are

manufactured outside the United States,

Finally – maybe some new tax revenue – maybe some new jobs.

Republicans aren’t going to try to  say this is a job killer. 

It may even bring some jobs back to the United States

– cause the excise tax on importing doesn’t make the offshoring of jobs more profitable.

Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers

What does that mean?

More tax revenue is possible.

RC Section 162(m)(6) is an Industry Gamechanger and Among the Provisions Under Scrutiny

Among the provisions that may be subject to the Supreme Court's decision is the deduction limitation contained in Section 9014 of the Act and codified at IRC Section 162(m)(6).  This subsection is in addition to the limitation imposed in IRC Section 162(m)  which restricts the deduction a publicly-traded company may take for compensation paid to a narrow group of executives to $1,000,000 per year.  Within IRC Section 162(m)(1)  is a "performance-based compensation" exception as well as several other possible exceptions that can help lessen the blow of the limitation in IRC Section 162(m), including an exception for compensation paid to former executives.

More controversial and limited is new IRC Section 162(m)(6).  An industry gamechanger because of its broad and expansive application, the new provision applies to "covered health insurance providers" and limits the tax deduction these health care insurers may take with respect to compensation for services paid to all current and former employees, and most independent contractors, to $500,000 per year.

Take special attention to the “exceptions” – loopholes, loopholes

But there is the possibility for – some new tax revenue – cause it “restricts the deduction a publicly-traded company may take for compensation paid to a narrow group of executives to $1,000,000 per year”  Raising salaries for the corporate 1% – won’t necessarily result in higher expenses for the corporation, resulting in lowering taxes for certain employers.