Health Insurance

From 2014-2018, all uninsured U.S. citizens and legal residents were required to obtain health care coverage or pay a tax penalty. However, starting in 2019, with the passing of the Tax Cuts and Jobs Act in December 2017, the individual mandate that required all Americans under 65 to have health insurance or pay an annual penalty, is repealed. Americans without health coverage in 2019 and beyond will not be subject to a Federal tax penalty.

To assist those who cannot afford the full cost of premiums, the Medicaid program enrolls uninsured individuals with incomes up to 133% of the Federal poverty level (FPL). Subsidies will be provided on a sliding scale to individuals with lower to mid-level incomes who do not qualify for Medicaid. Families and individuals with incomes up to 400% of the FPL may be eligible for a premium assistance tax credit to help them purchase basic coverage through an exchange.

To help raise revenue, the law will broaden the Medicare tax base for higher-income taxpayers. This includes an additional Hospital Insurance tax rate of 0.9% on earned income in excess of $200,000 for individuals and $250,000 for married couples filing jointly, as well as a 3.8% unearned income Medicare contributions tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the same threshold amounts. Some trusts and estates will also be liable for this 3.8% tax.

Starting for tax years beginning after December 31, 2021, a 40% nondeductible excise tax will be imposed on health insurance providers or plan administrators for any “Cadillac” health insurance plan with annual premiums in excess of $10,200 for individual and $27,500 for family coverage, with both amounts adjusted for inflation and higher thresholds for employees in certain high-risk professions and non-Medicare retirees age 55 and older. Insurance providers and plan administrators are permitted to pass along the excise tax to consumers through higher premiums.

Health insurance is another important benefit that can distinguish one employer from another when it comes to attracting and retaining employees. Over the last several years, rules regarding employer-sponsored health insurance have changed, as a result of health care reform passed in 2010. Small businesses with fewer than 25 full-time equivalent employees (FTE) whose average employee salary is about $50,000 per year or less that pay at least 50% of the health care premiums for their employees qualify for a tax credit of up to 50% of their premiums (up to 35% for nonprofits), if insurance is purchased through an exchange Small Business Health Options Program (SHOP). The amount of the credit for a specific business is based on the number of its employees and the average wage. The smaller the business, the bigger the credit.

While employers are not required to offer health insurance plans under current law, in 2020, a business with 50 or more full-time employees (defined as working 30 or more hours per week) will be required to provide health insurance to at least 95% of their FTE and dependents to age 26 or pay a penalty. The business must provide health insurance plans that meet “minimum value” standards, or ones that cover at least 60% of the total cost of medical services. If the employer’s plan fails to meet the minimum value requirement or costs more than 9.78% of an employee’s annual income, then the company will have to pay penalties. Companies that don’t offer affordable coverage will owe $3,860 for every FTE employee who gains coverage through the marketplace. If an employer fails to offer any type of health insurance, then they will have to pay $2,570 per FTE employee. The employer will only pay the penalty if an FTE employee enrolls in a subsidized health insurance plan on the marketplace. In 2020, companies are allowed to deduct the first 30 FTE employees from their calculations. Employers that offer health care coverage may in some cases also be required to provide “free choice vouchers” to employees. Employers and other entities providing minimum health coverage are required to report the value of health benefits to the IRS, and this value appears on employee W-2 forms. Compliance with the Affordable Care Act (ACA) provisions can be complex so consult with your advisors for guidance.