The Patient Protection and Affordable Care Act (PPACA) – what is commonly referred to as the “Healthcare Reform” – has a wide array of changes that take place over the next few years, with the biggest of these changes taking effect in 2014. The two biggest items that we wanted to highlight for 2011 are mentioned and described below.
#1 – Small Business Tax Credit for Insurance Premiums
The PPACA offers small businesses (including tax exempt organizations) the opportunity to take advantage of a tax credit for up to 35% of the premiums that are paid out for insurance premiums on behalf of their employees. This credit is taken on the business’s annual income tax return. To be eligible, you must meet the criteria below:
- Business must have fewer than 25 full-time employees for the tax year of 2010
- Average annual wage per full-time employee must be less than $50,000
- Employer must pay at least 50% of the single coverage premium cost for health coverage
TO FIND OUT IF YOU’RE ELIGIBLE, USE THIS TAX CREDIT CALCULATOR FROM H&R BLOCK
Note: Sole proprietors are not eligible for the small business tax credit.
#2 – Purchasing Over-The-Counter Drugs Using Health Savings Account Funds
Many members have chosen to enroll in one of the High Deductible Health Plans (HDHP) which are qualified for a Health Savings Account (HSA). By utilizing a HSA, you are able to use pre-tax dollars to pay for medical expenses that are incurred throughout the year. The PPACA has changed the rules on using HSA dollars to pay for over-the-counter medicines and drugs. As it pertains to drugs and medicine, starting on January 1st of 2011, you will only be able to use your HSA dollars to pay for prescribed medications and insulin with your HSA dollars. You will no longer be able to use your HSA funds to pay for over-the-counter drugs (unless you have a prescription from your doctor). The language from the IRS and a link to its website are shown below.
“A. In accordance with Section 9003 of the Affordable Care Act, only prescribed medicines or drugs (including over-the-counter medicines and drugs that are prescribed) and insulin (even if purchased without a prescription) will be considered qualifying medical expenses and subject to preferred tax treatment.”