By Andy Biebl
DTN Tax Columnist
One of the recent challenges we have faced as tax advisers is to find all the tax increases buried in the Affordable Care Act (ACA) and help our clients deal with them. This year it has been the 3.8% investment income tax and the extra Medicare tax. In 2014, the big ones are the individual mandate and the employer penalty. This last one, affecting those with over 50 employees, is a real nightmare, but most farmers will slide beneath that threshold.
This column is about two "sleeper" taxes that have apparently been beneath everyone's radar. Sadly, you may spend more to comply than you will pay in actual taxes.
Both affect self-insured medical reimbursement plans or MRPs. These arrangements are prolific with small businesses, especially those with family employees. The employer adopts a written plan that reimburses out-of-pocket medical expenses not covered by insurance. The employer claims a business deduction, and the employee has a tax-free fringe benefit. These are sometimes referred to as 105 plans or Health Reimbursement Arrangements (HRAs).
THE $2 EXCISE TAX
Employers who provide a medical reimbursement plan will need to remit an annual excise tax return of $2 per covered individual. That's not $2 per employee, but rather based on family size if the MRP covers spouse and dependents. The first of these payments is computed for the calendar year 2012, and the payment and filing is due July 31, 2013. For this first year, the excise tax is $1 per head rather than $2. The tax is remitted using Form 720, which is normally submitted as a quarterly federal excise tax return. In this case, it's filed annually and is due 7 months after the plan year end.
The revenue from this tax funds the Patient-Centered Outcomes Research Institute or PCORI (yes, another taxpayer-funded government study!). For those looking for details, start with Internal Revenue Code Sec. 4376.
REINSURANCE PROGRAM FEE
The ACA also requires an employer with a self-insured group health plan to remit a fee to help stabilize premiums for coverage of high-cost individuals. This one is under the control of Health & Human Services or HHS. Each employer must submit its annual enrollment count to HHS by Nov. 15 of the benefit year. HHS will notify the plan sponsor of the cost by Dec. 15, and the business has 30 days to remit the fee.
For the first year, the tax is $63 per enrollee in the plan. Again, this translates to paying the tax for each family member who is participating in the MRP. See ACA sec. 1341 for more details. This fee applies from 2014 through 2016. HHS has not yet provided details on how to submit enrollment counts or payments.
Amazingly, neither of these taxes has any de minimis exemption for small employers. That Health Care bill so needed the light of day before passage!
Editor's Note: Andy Biebl is a CPA and tax partner with CliftonLarsonAllen LLP in Minneapolis and a national authority on ag taxation. He contributes to DTN and our sister publication, The Progressive Farmer. To pose questions for upcoming columns, email AskAndy@dtn.com
(MZT/AG)
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