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Friday November 28, 2014

Washington News

Washington Hotline

Affordable Care Act Guidance

Just before the Thanksgiving holiday, the IRS published comprehensive and voluminous regulations on the Affordable Care Act. The regulations covered three principal new taxes.
  1. Net Investment Income Tax - The 3.8% tax is assessed on passive income and capital gains for upper-income taxpayers. The guidance explained in detail the types of business and investment activities that would be either included or excluded from this tax.
  2. Health Insurance Provider Fee - Starting in 2014, there will be an annual fee for each organization that is providing health insurance. There also will be substantial penalties for failure to report properly or pay the fee.
  3. Additional Medicare Tax - The 3.8% tax is covered in part by the existing 2.9% Medicare tax. However, just as upper income persons are subject to the 3.8% tax on net investment income, there is a potential additional 0.9% tax on earned income for these taxpayers.
At a Washington conference on November 26, IRS Office of Chief Counsel representative Thomas Reeder commented on forthcoming guidance. He stated that there will be significant new provisions that affect the implementation of the Affordable Care Act. The White House has delayed for one year the requirement that employers with 50 or more employees provide mandatory healthcare coverage. Following the one year delay, that provision will take effect. Reeder indicated that there will be specific guidance on the enforcement methods for that employer mandate.

At the same event, the Attorney Advisor for the Treasury Office of Benefits Tax Counsel, Kevin Knopf, also discussed the recent change in the flexible spending accounts (FSAs). Each participant in a plan may allocate up to $2,500 per year to the FSA.

The new guidance changes the former "use-it-or-lose-it" rule. It allows individuals to carry forward up to $500 of unused amounts or permits the plan to choose to allow a carry-over period of 2 ½ months. Many plans are choosing to permit the $500 carry-forward. This minimizes the pressure on individuals to use the healthcare allowance at the end of each year.

Published November 29, 2013

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