Tax Provisions of the Affordable Care Act Effective 2011

Tax on Health Savings Account Distributions

The additional tax on distributions from an HSA or an Archer MSA that are not used for qualified medical expenses is increased from 10 to 20 percent of those distributions, effective for distributions made during the tax years starting in 2011.

For more information on health savings account distributions, see Publication 969 on the IRS website.

SIMPLE Cafeteria Plans for Small Business

Small employers will be permitted to adopt new “simple cafeteria plans” that will include safe harbor participation and contribution rules similar to those in SIMPLE 401(k) or SIMPLE IRA rules effective for taxable years beginning after 2010. By satisfying the minimum participation and contribution requirements the employer will not be required to meet the non-discrimination rules that otherwise would apply.

For more information on SIMPLE cafeteria plans for small businesses, see IRS Publication 560.

Annual Fee on Pharmaceutical Manufacturers and Importers

There is a fee on each covered entity engaged in the business of manufacturing or importing branded prescription drugs for sale to any specified government program or pursuant to coverage under any such program. (Effective 2011) 

For more information on the annual fee on pharmaceutical manufacturers and importers see IRS Notice 2011-92.

Guidance: On Nov. 4, 2011, the IRS issued Notice 2011-92

Restrictions on use of Health Savings Accounts (HAS) and Flexible Spending Accounts (FSA) Funds

Effective in 2011, amounts paid for over-the-counter medications will no longer be reimbursable from HSAs, Archer MSAs, health FSAs, or health reimbursement arrangements.

For more information on restrictions on the use of HSA and FSA funds, see IRS Publication 969.