Uncertain future clouds recent alterations to ACA
We all know that the Affordable Care Act — Obamacare — is in peril. Which parts of it might survive (coverage for pre-existing conditions, dependent coverage up to age 26) and which might die are uncertain at this point.
Even Obamacare supporters conceded that some improvements were needed. Last December such an improvement was made – the ability of a small employer to reimburse an employee for health insurance coverage.
Obamacare has an employer mandate, which requires employers with 50 or more full-time equivalent employees to provide health insurance to its employees and dependents up to age 26.
A penalty applies to these large employers who fail to make available health insurance. Small employers (fewer than 50 full-time equivalent employees) are not subject to the mandate.
Many small employers found it less costly to reimburse employees for the cost of health coverage or medical costs. This was done through health reimbursement arrangements.
This may appear to be a fairly simple issue. The small employer offers an HRA to its employees, and an employee then uses the reimbursement to cover the cost of a health insurance plan.
The problem was that an HRA was itself considered to be a group health plan. Health plans must comply with Obamacare requirements such as no limit on annual or lifetime benefits and no cost sharing for preventive care.
An HRA fails to satisfy the Obamacare requirements for a health plan. So a small employer who opted to reimburse employee insurance premiums was then subject to a $100-per-day, per-employee penalty.
Effective Jan. 1 of this year, a new Qualified Small Employer Health Reimbursement Arrangement (QSEHRA – even the acronym is hard to type) will permit employer reimbursements of insurance premiums or medical costs without any employer penalty.
First, this health reimbursement will be income tax and Social Security tax-free to the employee. The employer will not have to pay payroll taxes on the reimbursement.
Not all HRAs will qualify for the penalty exemption – that’s why the term “qualified” is used.
Qualified arrangements are available only to small employers, and then only to those who fail to offer a group health plan to the employees. The maximum reimbursement is $4,950 for individuals or $10,000 for families.
The QSEHRA must be offered to all eligible full-time employees on a common basis. Such an arrangement can use only employer money — there can’t be an element of voluntary salary reduction contributions by employees.
A final element of a QSEHRA is employer requirements to notify the employees covered by the arrangement of the implications of the reimbursement on federal subsidies available under Obamacare.
Within 90 days of the start of the plan year, the employer must inform the employee that the reimbursement benefit must be reported to any health insurance exchange that the employee uses to purchase coverage.
The reimbursement may affect the ability to qualify for an exchange subsidy because the reimbursement itself may make the coverage “affordable.” If coverage is affordable, no subsidy is available.
Finally, for 2017 Form W-2s issued by the employer (those issued in January 2018), the qualified reimbursement must be reported on the W-2. This reporting does not make the benefit taxable — there are many nontaxable benefits reported on the Form W-2.
Q: I am an elementary school teacher who spends about $500 per
year to supplement my classroom supplies. I know I can deduct $250 of this on my taxes but want clarification of what costs are eligible.
Expenses that qualify as ordinary and necessary business expenses qualify. This can include books, supplies, continuing education costs and computer equipment and supplies.
Other costs may also qualify if they are ordinary and necessary. This deduction is available only to K-12 educators (teachers, counselors, principals, and aides).
One important clarification: You can deduct any qualified
business expenses that were not reimbursed. But such costs are generally deducted as itemized deductions that are allowed only if they exceed 2 percent of your adjusted gross income.
The AGI threshold usually means that no benefit is available. The $250 allowance for educator expenses lets you claim these deductions on the first page of the tax return without regard to whether you itemize or whether the costs exceed 2 percent of AGI.