With the re-election of President Obama behind us, and the composition of the Congress relatively constant, it looks like Obamacare (Patient Protection and Affordable Care Act) is here to stay. Employers must now look ahead to the next two years, when the major portions of the legislation will become effective, and start their plans for compliance.
Form W-2 Reporting For 2012 Tax Year
Next month, on December 31, 2012, employers who issue 250 or more Form W-2s must include the value of the group health plan benefits on the Form W-2. The amount reported should include the amount the employer paid in 2012 and the amount the employee paid. However, salary reduction contributions for Flexible Spending Accounts (FSA’s) are not counted, nor are contributions to Health Savings Accounts, or Archer Medical Savings Accounts. Small businesses can opt to include this information on their W-2s, but are not required to do so. Employers may want to remind employees, either verbally or in writing, that providing this information on the Form W-2 does not change the employees’ tax liability.
Flexible Spending Account Annual Limit
Next year, on January 1, 2013, the maximum dollar limit for employers’ FSA plans is capped at $2,500 annually, applicable to the plan year, not the calendar year. Currently, there is no cap. According to Forbes, 33 million workers divert pre-tax salary into these accounts to cover out-of-pocket healthcare expenses like co-pays and deductibles. According to AON Hewitt, 78% of large employers set the FSA limit at $5,000 or higher. One thing to watch for is whether Congress tries to remove FSA’s altogether, as an earlier version of Obamacare tried to do.
Retiree Prescription Drug Expenses
On January 21, 2013, employers can no longer take deductions for subsidizing retiree prescription drug expenses. The subsidy still remains, but its deductibility is eliminated, so employers will have increased income tax liability which will increase the cost of providing this coverage. Employers who are contemplating eliminating this coverage should consult counsel regarding possible exposure to ERISA and other litigation. In addition, employers should have a plan to address the possible negative responses from their employees reacting to eliminating this coverage.
Increase in FICA on Earned and Unearned Income
On January 1, 2013, the Federal Insurance Contributions Act (FICA) tax will increase by 3.8% on certain unearned income of high-income individuals above certain thresholds. The increase is on the lesser of the net investment income for a taxpayer’s taxable year or the modified adjusted gross income for such taxable year over $250,000 for joint filers ($125,000 for married individuals filing as single, or $200,000 for single filers).
There will also be a 0.9% tax increase on the Medicare tax for high-income earners, which are individuals earning annually more than $250,000 for joint filers ($125,000 for married individuals filing as single, or $200,000 for single filers). The increase applies only to employee-paid FICA taxes. Employers will be required to withhold this tax on earnings in excess of $200,000 in a calendar year (even for married individuals). The employer has this withholding obligation even if the employees are not liable for the tax because, for example, they are married and do not meet the $250,000 threshold. In this case, withheld tax will be credited against the total tax liability shown on the individual’s income tax return.
Employee Notice of Healthcare Exchange
On March 1, 2013, employers must provide a notice to employees of the availability of State Health Insurance Exchanges. For current employees, this notice must be provided no later than March 1, 2013. For new hires after March 1, 2013, this should be provided at the time of hire. The notice must be written and include: 1) information regarding the existence of a health insurance exchange, including a description of the exchange’s services and contact information of the exchange; 2) if the employer’s plan pays less than 60% of the covered benefits, a statement that the employee may be eligible for premium tax credits if the employee purchases coverage through the exchange, and 3) a warning that the employee might lose the employer contribution toward the cost of health coverage, including the tax favorable treatment of the employer’s contribution, if the employee purchases coverage through an exchange.
2014: A Big Year for Obamacare
While lots of changes will occur in 2013, 2014 will also be a major year for Obamacare. This is the year that many of the major provisions of Obamacare are slated to take effect including the pay or play provision for employer shared responsibility (employers with at least 50 full-time equivalent employees must offer a minimum level of affordable healthcare coverage or pay tax penalties), the pay or play provision for the individual mandate (most individual taxpayers will have to have health coverage on a state health insurance exchange or pay tax penalties), and automatic enrollment in group health plans for employers with over 200 full-time employees.
With the re-election of President Obama, employers should start planning their compliance strategies now. The legislation will likely not be repealed and the expected fine-tuning is not likely to change these major obligations. Employers should not wait until the effective dates are upon them to formulate a compliance plan.
Brody and Associates regularly advises management on complying with the latest state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.
