The recently passed health care legislation is a very complex law. Most of the provisions do not even take effect this year, however we thought you should be aware of four provisions that will affect you in 2010.
- Beginning with the first plan year after September 23, 2010, an employee will be allowed to enroll his or her child on the health insurance plan up to age 26 – even if the child no longer lives with the parent – provided that the child does not have other coverage available to him or her.
- Beginning with the first plan year after September 23, 2010, some lifetime benefit caps are eliminated along with the elimination of the pre-existing condition limitation on dependent children under age 19.
- Beginning with the first plan year after September 23, 2010, an employer may no longer establish any eligibility rules for participation in a health care program that discriminates in favor of higher-paid employees
- Beginning no later than the tax year that begins on or after January 1, 2010, a business tax credit may be available to certain small employers that provide health care benefits to its employees. This program is discussed below.
The only major provision that became effective immediately is a small employer tax credit available effective no later than the organization’s tax year beginning on or after January 1, 2010. A small business or tax exempt organization is eligible to claim a health care tax credit provided that
- The number of full-time equivalent (FTE) employees, not including the owner(s) or family members of the owner(s), is 24 or less; and
- The FTE equivalent is calculated by counting each full-time employee as one employee, and then adding the annual hours worked for part-time employees up, and dividing by 2,080. Add the number of full-time employees to the FTE equivalent for the part-time employees, and you have the FTE equivalent. A seasonal worker (defined as one who works less than 120 days during the tax year) does not count in the FTE calculations.
- The average annual total wages paid to these employees, again not including the owners or family members of the owner(s) is $50,000 or less; and
- You pay at least half of the insurance premium for each employee at the single, employee-only, coverage rate; and
- This means that an employer who either employs 25 or more employee FTEs, or one who pays an average annual wage in excess of $50,000, is ineligible for the tax credit.
The tax credit percentage can be as high as 35% for a firm with nine or fewer employee FTEs and average wages less than $25,000. The tax credit percentage that a firm with more than ten employees, or average wages up to $50,000 will be lower, dependent on the formula. The calculation will also take the ‘average premium for a small group market’ as determined by the IRS into account; this determination has not yet been released by the IRS.
The IRS has published some valuable guidance on the program at https://www.irs.gov/newsroom/article/0,,id=220809,00.html. EMPO recommends that you check with your tax preparer prior to your next medical renewal to ensure that you can maximize any credits available to your business.
The information provided in this article is guidance based on the information available to EMPO at the time this article was published. We expect changes to be made to the law itself, either by Congress or by the Department of Health and Human Services (HHS). HHS has been tasked with implementing most facets of the new law. Because HHS has been given broad powers in how to implement the general guidelines of the law, there are changes anticipated to what we presently know. These changes should not greatly affect the changes planned for 2010 or 2011, but will likely affect later years. We will keep you informed as these changes occur, and as we get closer to implementation in later years.
by Scott Andreassen, Director of HR Services at EMPO
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