Health Care Reform Legislation and Employer Incentives
President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law on March 23, 2010. The House and the Senate passed a second health care bill (H.R. 4872) to make adjustments to PPACA and President Obama signed this bill into law on March 30, 2010. The total estimated cost to implement this health care reform is $940 billion over 10 years with an estimated reduction in budget deficit of $138 billion over the same 10 years. The key provisions of H.R. 4872 relevant to our community include the following:
- Expands coverage to 32 million additional Americans, prohibiting the denial of coverage based on pre-existing conditions and prohibiting increases in premium rates due to pre-existing conditions or gender;
- Individual mandate will require all U.S. citizens and legal residents to obtain health insurance or pay a penalty of up to $695 per adult;
- Individual affordability is achieved through affordability tax credits, based on a sliding scale for individuals and families to obtain health insurance through exchanges up to 400% of the federal poverty level;
- Employers are not required to offer insurance coverage to their employees, but employers with more than 50 full-time employees that do not offer health coverage must pay a fee of $2,000 to the federal government for each uncovered employee, with the first 30 employees being exempt from this fee;
- Small businesses and qualifying nonprofits with 25 or fewer employees with average wages under $50,000 will be eligible for tax credits so they can extend health insurance to their employees and this credit will be made available this year;
- Health insurance exchanges will be established by each state to facilitate enrollment for individuals and small businesses
The IRS and HHS have already taken steps to implement this legislation, issuing guidance (especially to small businesses and nonprofits) and working to determine the cost and scope of governing regulations. Some of the law’s provisions will take effect immediately, like the small-employer credit provision, which also benefits nonprofit organizations. Other provisions will be instituted over the next four years. Qualifying 501 (c) organizations must pay at least half of their employees’ single coverage premiums to qualify for the tax credit. Eligible nonprofit employers would receive a credit of up to 25 percent of the employer contribution which they would apply to taxes they pay or withhold for their employees; employees would still receive full credit for taxes withheld from their pay. In 2014 and beyond, all eligible nonprofit employers that purchase coverage for their employees through a state insurance exchange would receive a credit of up to 35 percent of the employer contribution for employees' coverage which would be applicable against payroll taxes they withhold or pay for their employees.
Please visit the IRS website for more information on how you can claim the small business (and nonprofit) health care tax credit.