When Congress passed the Patient Protection and Affordable Care Act and its companion bill, the Health Care and Education Reconciliation Act (collectively known as the Affordable Care Act) in 2010, lawmakers staggered the effective dates of various provisions. The most well-known provision – the so-called “individual mandate” – is scheduled to take effect in 2014, but a number of other provisions are scheduled to take effect in 2013. All of these require careful planning before their effective dates.

Business Implications

No matter your company’s size or sector, it is inevitable that you will face employee benefits issues in the wake of healthcare reform.  Already fighting the battle against increased healthcare costs, most businesses will now find managing their employer-sponsored plans more difficult than ever.

Since the Supreme Court upheld the Affordable Care Act in late June, employees will be responsible for carrying minimum healthcare insurance or be penalized. Since employees will carry some of the burden to maintain minimum insurance, as a small business you may begin to question if the cost of offering employer-sponsored benefit plans is truly worth it. This will not be an easily answered question, as you must consider tax ramifications, compensation of employees and, ultimately, the recruitment and retention of your best asset – your employees.

Beginning in 2014, employers with 50 or more full-time employees can expect to take on a shared responsibility payment. The shared responsibility payment is a penalty to larger employees for failing to offer employees the opportunity to enroll in minimum essential coverage. Failing to comply will result in a penalty of $2,000 per full-time employee, excluding the first 30 employees. To make matters more complicated, if you have an employee who receives a premium tax credit you can add to this penalty fee.  Premium tax credits will be available to families and individuals (those uninsured and that fall in lower- to middle-class) in 2014 in order to help make healthcare more affordable.

The employer-shared responsibility payment provisions are among the most complex in the Affordable Care Act, and the IRS has requested comments from employers on how to best implement the provisions. In good news for employers, the IRS has indicated it may develop a safe harbor to help clarify who is a full-time employee for purposes of the employer-shared responsibility payment.

Over the next few years, your ability to employ benefit plan strategies depends largely on the fate of the Affordable Care Act.

Impact on Individuals


Two important changes to the Medicare tax are scheduled for 2013.

  1. For tax years beginning after Dec. 31, 2012, an additional 0.9 percent Medicare tax is imposed on individuals with wages/self-employment income in excess of $200,000 ($250,000 in the case of a joint return and $125,000 in the case of a married taxpayer filing separately).
  2.  Moreover, and also effective for tax years beginning after Dec. 31, 2012, a 3.8 percent Medicare tax is imposed on the lesser of an individual’s net investment income for the tax year or modified adjusted gross income in excess of $200,000 ($250,000 in the case of a joint return and $125,000 in the case of a married taxpayer filing separately).

The Affordable Care Act sets out the basic parameters of the new Medicare taxes, but the details will be supplied in IRS regulations. To date, the IRS has not issued regulations or other official guidance about the new Medicare taxes (although it did post some frequently asked questions on its website). As soon as the IRS issues regulations or other official guidance, our office will advise you. In the meantime, please contact our office if you have any questions about the new Medicare taxes.

The act also limits annual salary reduction contributions to a health flexible spending arrangement (health FSA) under a cafeteria plan to $2,500. If the plan allows salary reductions in excess of $2,500, the employee will be subject to tax on distributions from the health FSA. The $2,500 amount will be adjusted for inflation after 2013.

Additionally, the medical expense deduction threshold is increasing in 2013. Currently, the threshold to claim an itemized deduction for unreimbursed medical expenses is 7.5 percent of adjusted gross income. Effective for tax years beginning after Dec. 31, 2012, the threshold will be 10 percent. However, the act temporarily exempts individuals age 65 and older from the increase.


The Affordable Care Act’s individual mandate generally requires individuals to make a shared responsibility payment if they do not carry minimum essential health insurance for themselves and their dependents. The requirement begins in 2014.

To understand who is covered by the individual mandate, it is easier to describe who is excluded. Generally, individuals who have employer-provided health insurance coverage are excluded, so long as that coverage is deemed minimum essential coverage and is affordable. If the coverage is treated as “not affordable,” the employee could qualify for a tax credit to help offset the cost of coverage. Individuals covered by Medicare and Medicaid also are excluded from the individual mandate. Additionally, undocumented aliens, incarcerated persons, individuals with a religious conscience exemption, and people who have short lapses of minimum essential coverage are excluded from the individual mandate.

Like the new Medicare taxes, the Affordable Care Act sets out the parameters of the individual mandate. The IRS is expected to issue regulations and other official guidance before 2014. Our office will keep you posted of developments.

With the potential for a change of the torch in political party leadership in the upcoming months, the debates on healthcare reform and its future will undoubtedly continue to be a hot topic.

Count on our Troy, Houston and Ft. Lauderdale CPAs for insight into the changes and how they impact your business, and help developing employee benefit strategies that work. For more information, contact us.