The health reform law passed last spring, but here come the changes your finance department will feel.
In the past week, IRS has issued two different requirements for complying with The Patient Protection and Affordable Care Act. What they cover:
- New limits on what can be reimbursed via flexible spending arrangements and other savings accounts, and
- A new form to calculate the small business health care tax credit.
Check out what the feds are expecting from Finance in the coming months:
Compliance Change #1: No more OTC meds in flex spending
You’ll want to tell employees to go ahead and put in for all the aspirin and Claritin they want reimbursed on their flex spending accounts. Because they won’t be able to for much longer. Under the health reform law, over the counter medications can no longer be reimbursed tax-free, effective Jan. 1, 2011.
Those new limits apply to:
- flexible spending arrangements (FSAs)
- health savings accounts (HSAs)
- health reimbursement accounts (HRAs), and
- Archer medical savings accounts.
That means once the new year arrives, a reimbursable item will only be viewed as a “medical expense” in IRS’s eyes if it’s prescribed. Note: It doesn’t have to be a prescription drug necessarily. But it must be prescribed by a medical professional, even if it’s an over-the-counter product.
Naturally, there will be some exceptions. You can assure employees that they can still store money for the following items, even after the Jan. 1 effective date:
- Insulin, even if employees don’t have a prescription
- Medical devices or equipment, like crutches or blood sugar test kits
- Eye glasses and contact lenses
- co-pays, and
Cite: IRS Revenue Ruling 2010-23 and IRS Notice 2010-59
Compliance Change #2: A new form to calculate the small business health care tax credit
If your company will be able to claim the small biz tax credit created by the health reform law, you‘ll want to check out a draft of this key form just released by IRS.
Small businesses and tax-exempt organizations will be able to use Form 8941 to determine how much credit to claim on their 2011 tax returns (non-profits will use revised Form 990-T).
Remember, for tax years 2010 through 2013, the maximum credit your company can claim is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible tax-exempt organizations.
Wondering who’s eligible? In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees.
Cite: IRS IR-2010-96 Sept. 7, 2010