Phil Carnevale, CFO Enterprise
ARE YOU READY?
The Patient Protection and Affordable Care Act, the related Health Care and Education Reconciliation Act and the Hiring Incentives to Restore Employment Act were signed into law in March 2010. These three pieces of legislation include financial reporting requirements and tax changes. Is your organization ready to comply with the necessary tax and financial reporting requirements? And better yet- Is your organization ready to take of advantage of the potential available tax credits included in this legislation?
Here are some of the items that will directly affect your organization:
1. There is a new tax credit for qualifying small employers. The credit can cover up to 35% of employee health insurance costs. It is available for tax years beginning in 2010, and it can be claimed for eligible costs that were incurred before the healthcare legislation became law.
2. There is a temporary employer Social Security payroll tax exemption for wages paid by a qualified employer to a qualified new employee between March 19, 2010 and December 31, 2010. Specifically, such wages are exempt from the 6.2% employer portion of the Social Security tax.
3. Your business may be able to take advantage of the temporarily generous Section 179 deduction, which is $250,000 for tax years beginning in 2010. For tax years beginning in 2011, the maximum Section 179 deduction is scheduled to take a drastic fall to only $25,000.
4. Commencing in 2012, there are three new Form 1099 reporting requirements; (1) if a business pays a corporation $600 or more in a calendar year, the total amount paid must be reported, (2) if a business pays $600 or more in a calendar year to any payee (including an individual) as “amounts in consideration for property”, the total amount of such payments must be reported, and (3) payments of $600 or more in “gross proceeds” to a payee in a calendar year must be reported. You may need to modify your accounting procedures to capture payee information that will be needed to comply with the new rules. In addition, you must be prepared to provide your Tax Payer Identification information to your suppliers. Failure to do either may require you to withhold federal income taxes pertaining to the payment that you make to suppliers or require your suppliers to reduce their payments to you for federal income tax withholding amounts.
5. Federal Income Tax rates are set to automatically increase on January 1, 2011. 2010 may be a good year for C corporation distributions, stock redemptions and stock sales. 2010 may be a good year to convert some theoretical C corporation wealth into cold, hard cash at a historically low tax cost. In addition, the traditional strategy of deferring business income and accelerating business deductions may be inadvisable this year.
6. Commencing in 2011, employers are required to provide information with regard to the cost of health care on each employee’s Form W-2.
7. Commencing in 2014, U.S. citizens and legal residents of this country will be required to pay penalties if they do not obtain “adequate” health insurance coverage. In addition, employers with at least 50 full-time employees that do not provide all such employees with affordable healthcare coverage that meets certain minimum standards of generosity will be charged a penalty if even one full-time employee purchases his own government-subsidized coverage through a state-run exchange. Some employers must give a “free-choice voucher” to any eligible employee who chooses to buy his or her own coverage instead of participating in the company plan.
The legislative changes noted above may present opportunities for you to obtain tax credits to reduce your tax liabilities and improve cash flow, they may also require changes to your internal accounting and information processing systems and they will surely require that you analyze your existing employee benefit programs.