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A Guide to Navigating New Tax Laws


Tax Implications of the Affordable Health Care Act

The Affordable Health Care Act, commonly referred to as Obamacare, was signed into effect on March 23, 2010. Along with it, came several tax changes that have been gradually implemented over the years.

Medical Loss Ratio (MLR)

In 2011, it was determined that health insurance companies must spend a specified percentage of premium income on medical care and quality improvement, in order to meet the medical loss ratio. Insurance companies not meeting the MLR are required to rebate their customers.

Employer Provided Health Insurance Must Be Reported on W-2 Forms

Employers will be required to report the cost of health insurance coverage under group plans, on the employee’s Form W-2. The reporting does not affect tax liability, but is for informational purposes only, so employees can see the value of their health care benefits.

Net Investment Income Tax

This tax goes into effect in 2013, and is a 3.8% tax applying to individuals, estates, and trusts that have investment income above a particular threshold.

Additional Medicare Tax

This additional 0.9% Medicare tax also goes into effect in 2013, and applies to wages, Railroad Retirement Tax Act compensation, and self-employment income above a certain threshold amount based on filing status. Married taxpayers filing jointly who earn more than $250,000/year, married taxpayers filing separately earn who earn more than $125,000/year, or any other tax status earning more than $200,000 a year must pay this tax.

Small Business Health Care Tax Credit

Small businesses who agree to pay at least half the cost of single coverage for their employees will qualify for this credit to incentivize small businesses to provide first-time coverage or maintain current coverage for their workers.

Health Flexible Spending Arrangements

As of 2011, the cost of over-the-counter medications cannot be reimbursed through an FSA, unless a prescription is provided. This does not apply to insulin, medical devices, eyeglasses and contacts, co-pays, or deductibles. A similar rule also went into effect for health savings accounts (HSAs).

Health Insurance Premium Tax Credit

Beginning in 2014, a new tax credit will take effect to help cover the cost of health insurance purchased through an affordable insurance exchange. This credit is refundable, so even those with little to no tax liability will still benefit. The credit may be paid in advance to an insurance company to help cover the cost of premiums.

Health Coverage for Older Children

Health coverage for an employee’s children under 27 years of age is now available and generally tax-free to employees.

Adoption Credit

The Affordable Care Act raises the maximum adoption credit to $13,360 per child, increased from $13,170 in 2010 and $12,150 in 2009.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans.

Employer Shared Responsibility Payment

Beginning in 2014, certain employers must offer health coverage to their full-time employees, or they may be required to share payment responsibility for health care coverage.

Patient-Centered Outcomes Research Institute

The Affordable Care Act establishes the Patient-Centered Outcomes Research Institute. This is designed to help policy-makers, patients, and medical staff work together to make informed health decisions. The Patient-Centered Outcomes Research Trust Fund will fund this, through fees paid by policy issuers and certain self-insured plans.


Do you have any additional questions about the tax implications of the Affordable Care Act? Let us know in the comments section.


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