Tax Provisions of the Affordable Care Act Effective 2010

Small Business Health Care Tax Credit

The small business health care tax credit was created to help small businesses (those with fewer than 25 full-time employees and annual average wages of $50,000) as well as small tax-exempt organizations afford the cost of providing health insurance coverage to their employees. Beginning in 2014, the credit is available only for health insurance provided through the Small Business Health Options Program (SHOP) Marketplace.  First, a business needs to determine if it a qualifies for the SHOP Marketplace. This can be done by using the Full-time Equivalent (FTE) Employee Calculator on the website.  Then determine if the business qualifies for the credit and how much with the help of the Small Business Healthcare Tax Credit Estimator.

The amount of the credit was 35% (25% for tax-exempt organizations) of the employer’s contribution to health insurance premiums for 2010 through 2013.  However, from March 2, 2013 through September 30, 2013, due to budget cuts resulting from sequestration, the credit was reduced by 8.7% for certain small tax exempt taxpayers.  Beginning 2014 the credits increased to 50% for small businesses and 35% for tax-exempt organizations. 

The credit is only available for two consecutive tax years. The credit can be carried forward or back if a small business doesn't owe taxes during the year. And, any excess of the premiums over the amount of the credit can still be taken as a deduction on the small business's return. To claim the credit, file Form 8941 Credit for Small Employer Health Insurance Premiums.

Proposed regulations were released in Aug. 2014, which changed the amount of the credit from 35% to 50%, beginning in 2014, and placed a two-year limit on the credit. 

Final Regulations
 were issued in June 2014.

For more information on the small business health care tax credit go to the IRS website.

Adult Dependent Insurance Coverage

Effective for plan years beginning after September 23, 2010, group health plans and health insurers providing dependent-care coverage must continue to make the coverage available for adult children until they reach age 26. 

Effective March 30, 2010, reimbursements for medical care under an employer-provided accident or health plan are excluded from gross income for any employee’s child who has not yet turned 27 by the end of the tax year. 

For more information on adult dependent insurance coverage see IRS Notice 2010-38 as well as the IRS website.

Expansion of Adoption Credit, Adoption-Assistance Programs

The adoption credit was significantly enhanced for tax years 2010 and 2011.  Not only was the credit increased to $13,170 in 2010 (up from $12,150 in 2009) and $13,360 in 2011, it was made refundable as well.  While the credit reverts back to being non-refundable in 2012, and the amount of the credit will decrease in 2012, it will still be substantial at $12,650.  Unless extended, the credit is set to expire on January 1, 2013.
Also, you may be able to exclude from your income amounts paid to you or for you by your employer under a qualified adoption assistance program. You may qualify for the income exclusion if you adopted or attempted to adopt a child and the program paid or reimbursed you for qualified expenses relating to the adoption. The amount of the exclusion is as much as $13,360 for 2011. Special rules apply for when to exclude the income for foreign adoptions.

You may not get the full amount of the exclusion in 2011 if your modified adjusted gross income (MAGI) is more than $185,210 and the credit is completely phased out if your MAGI is $225,210 or more.

If eligible, you can take the adoption credit or the exclusion of adoption expenses but you cannot take both.

To claim the credit or exclusion, complete Form 8839, Qualified Adoption Expenses, and attach it to your Form 1040 or Form 1040A.  You must attach one or more adoption related documents, identified in the form instructions, with the completed Form 8839.

For more information on the credit, please see IRS Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52.  Also, go to the IRS website.

Codification of the Economic-Substance Doctrine

The Economic Substance Doctrine was modified to require that both of the following requirements be met to satisfy the doctrine: (1) the transaction changes the taxpayer’s economic position in a meaningful way (apart from Federal income tax effects); and (2) the taxpayer has a substantial purpose for entering into the transaction (apart from Federal income tax effects). The provision is effective for transactions entered into after the date of enactment of March 30, 2010. 

A section 6662 penalty is created for an underpayment attributable to the disallowance of claimed tax benefits because the transaction lacked economic substance. The penalty is 20 percent (40 percent if the transaction is not adequately disclosed) and there is no reasonable cause exception. 

For more information on the codification of the economic-substance doctrine go to the IRS website.

Tax on Indoor Tanning Services

Indoor tanning salons will be required to collect and remit a 10% tax on their services beginning July 1, 2010.  Payments should be made along with Form 720, Quarterly Federal Excise Tax Return.

For more information on the tax on indoor tanning services, go to the IRS website.

Return Information Disclosure

The return information disclosure rule allows the IRS, upon written request of the secretary of Health and Human Services, to disclose certain taxpayer return information if the taxpayer's income is relevant in determining the amount of the tax credit or cost-sharing reduction, or eligibility for participation in the specified state health subsidy programs. This rule became effective March 2010.