CPA’s Role to Increase with Health Care Reform (Guest Commentary)

Most businesses do not initially think of their CPAs when discussing health care options for employees. That perception may have changed on March 23, 2010, when President Barack Obama signed the Patient Protection & Affordable Care Act, and one week later, the Health Care & Education Reconciliation Act of 2010.  These two laws, collectively referred to as “2010 health care reform legislation,” will have a significant effect on employers and the benefits they provide.

The effect of the new legislation on employers differs depending on the size of the business. Size, for purposes of the legislation, is defined by the number of employees.

Some provisions affect all employers. These provisions include new W-2 reporting requirements, the elimination of lifetime and annual limits on benefits, the requirement to provide first-dollar coverage for preventive care and the extension of eligibility for dependent coverage.

Complying with these provisions will require new internal and external review procedures for claims determination, and plan design changes will need to be implemented. CPAs will be called on to perform cost analysis studies to assist clients in determining the best course of action.

For employers with fewer than 25 employees, a new tax credit equal to 35 percent of non-elective contributions made by the employer is available. The employer must pay 50 percent of the premium cost and must pay a uniform percentage for all covered employees. Many employers will ask their CPAs to perform an analysis to determine the cost benefits of meeting the percentage benchmarks required to qualify for the credits.

For employers with fewer than 100 employees, the option of purchasing insurance through a state-established exchange will be available. Small businesses will need a framework for analyzing the pros and cons of purchasing insurance through the exchange rather than remaining with their current partners.

For employers with more than 50 employees, penalties apply if the employer does not offer coverage or offers inadequate coverage for all full-time employees.  The penalty applies when a full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.  The number of employees is based on average employee count from the prior calendar year, and the CPA can help assess the employer’s exposure.

Beginning in 2013, Medicare taxes increase to 2.35 percent on earnings of more than $250,000 for joint returns, $125,000 for married filing separate or $200,000 for individual returns. A separate 3.8 percent Medicare tax will be imposed on the lesser of net investment income or adjusted gross income over the same thresholds as the earnings tax increase. This new tax will affect the true rate of return on the taxpayer’s investment, and the CPA can assist in assessing the impact.

In addition to additional W-2 reporting requirements, beginning in 2012, all companies will have to issue 1099 forms to any individual or corporation from which they buy more than $600 in goods or services in a tax year. Effectively, this provision means 1099s will have to be issued to all vendors that are paid more than $600 during the tax year. This requirement was an unexpected addition to the health care legislation and will result in a dramatic increase in the number of 1099s that must be issued. The time and effort needed to obtain names and tax identification numbers for every payee and vendor will be extensive, and the cost estimate of the additional filings is $6,000 for a typical small business.

These are just some of the 29 tax provisions contained in the new health care legislation. As always when tax changes occur, CPAs are there to assist their clients with evaluation, implementation and monitoring of the changes, even when those changes come from unexpected sources.

(Some of the information for this article was supplied by the American Institute of Certified Public Accountants.) 

Pete Parks is a CPA and the managing partner of Parks & Rothwell PLC, with offices in El Dorado and Albuquerque, N.M. He is also president of the Arkansas Society of CPAs. He can be reached at [email protected].