A highly overlooked aspect of the health care reform, Patient Protection and Affordable Care Act, is the expanded 1099-MISC reporting requirements. The 1099-MISC reporting is being expanded in two different ways. The first expansion requires businesses to include payments made to corporations, and the second expands reporting to include payments of property.  The definition of “property” is still unclear, but IRS Commissioner Douglas Shulman recently made reference to “goods” instead of property which would suggest the IRS is looking at using a larger, more comprehensive definition.

This increased reporting requirement being placed on all businesses seems to be substantially burdensome in my opinion. How many businesses in this country will have to send 1099s to companies such as their local office supply store, and how many office supply stores want to receive potentially hundreds of thousands of 1099s from their customers? Businesses of all sizes will be required to report hundreds of 1099-MISC reports for any individual or corporation for which it pays $600 or more to in the year. Currently the requirement only applies to payments made to individuals, which makes sense, since individuals have the higher risk of not fully reporting income.  However, businesses already have reason to fully report their income to offset expenses and show owners and investors a return on their investment, not to mention potential SEC requirements and the fear of audits.

The AICPA, American Institute of Certified Public Accountants, is currently trying to influence Congress to repeal this section of the new health care law. If we are lucky, Congress will see the problems with this section and repeal it, however businesses in the mean time should review their systems to begin preparing for additional reporting burdens coming in 2012.

The expanded 1099 reporting provision of the PPACA has been repealed as of April 14, 2011. For additional information please proceed to our recent post: Two Provisions of Health Care Reform Recently Repealed.

Recently reported by Americans for Tax Reform, beginning on January 1, 2011, virtually everyone will be affected by tax increases based on expirations of prior tax cuts and recently enacted laws. Below is a list of a few tax changes coming in 2011, however this by no means is a complete listing of tax changes:

Personal income tax table changes. The income tax rates for all Americans will be increased by increasing the rates for each bracket of income. The phasing out of itemized deductions and personal exemptions will also continue resulting in increased tax rates as well. If the tax rate tables revert back to pre-2001 rates the changes to the income tax tables are: The 10% bracket rises to 15%, the 25% bracket rises to 28%, the 28% bracket rises to 31%, the 33% bracket rises to 36%, and the 35% bracket rises to 39.6%.

Marriage tax increases. The correction made in 2003 to reduce the effect of the “marriage penalty” will expire, increasing taxes to a large portion of married couples. Also the standard deduction will no longer be doubled for married couples relative to the single level.

Family tax increases. The child tax credit that is currently $1,000 per child will be reduced to $500 per child. The dependent care and adoption tax credits will also be cut.

The AMT will affect more tax payers. The Alternative Minimum Tax, which was enacted in 1969 to affect very few taxpayers, continues to be un-indexed for inflation. This will lead to an estimated 28.5 million taxpayers to pay taxes at a higher level.

Over-the-counter medicine. The health care reform act will take away the ability of Americans to use tax-free health savings accounts (HSA), flexible spending accounts (FSA), or health reimbursement accounts (HRA) to pay for non-prescription, over-the-counter medicines.

HSA withdrawal tax. The additional tax on non-medical withdrawals from an HSA will increase from 10 to 20 percent. This is technically a penalty tax on top of the normal income taxes you will have to pay for this withdrawal amount.

Name-brand drug tax. Drug manufacturers will have an additional tax put on them for their brand-name drugs. This will obviously be passed down to the individuals who purchase these drugs, ultimately increasing the cost of needed medication.

Multiple government agencies responsible for implementation of the new health care reform bill (PPACA), including the Internal Revenue Service and Health and Human Services, recently announced an amendment to the rules governing the grandfathered status of group health plans. The amendment allows group health plans to change policies, contracts, or carriers and keep their grandfathered status, provided the coverage does not violate one of the other rules for maintaining grandfather status (e.g. not increasing co-insurance, deductibles, co-pays above certain thresholds, etc.). This amendment to the interim final rules is effective November, 15, 2010.

Several concerns were raised concerning the prior interim rules which lead way to the creation of this amendment. One of those concerns which this amendment corrects was that self-insured group health plans were being treated differently than fully-insured programs. Self-insured plans were allowed to change third party administrators without affecting grandfathered status. Now that this amendment has been put in place, this change will equalize the treatment of the two different plans.

The full amendment can be found here.

Over the last couple of weeks two separate provisions of the Health Care Reform Act (PPACA) have been repealed. 

On April 14, 2011, the first provision of the PPACA to be repealed was the onerous expansion of 1099 reporting. This provision would have made it mandatory for businesses to significantly expand their reporting of 1099s to any vendor they pay $600 or more for goods and services. As we reported in an earlier blog, this would have increased administrative costs for all businesses immensely.  The repeal of this provision was expected from the inception of the PPACA.

The second repealed provision, which came as a pleasant surprise, is the “free choice voucher” program. The repeal was finalized on April 15, 2011 as part of the Fiscal Year 2011 Spending Plan. The voucher provision would have required employers to offer “free choice vouchers” to employees who chose not to enroll in the employer’s health plan, and would be used to purchase health coverage through one of the state “Exchanges” created by the PPACA.

Employer groups argued that vouchers would contribute to “adverse selection” to their group health plans. They explained that vouchers could encourage healthy employees to waive coverage under the group plan in favor of purchasing cheaper coverage through an Exchange. The remaining employees in the group plan would be less healthy or be in a classification, such as age, that would cause the premium cost of the group plan to increase. Additional concerns were voiced by employers over the increased burden and cost to administer the free choice vouchers. The vouchers were to be given only to employees with household income below 400% of the federal poverty level and whose required contribution for the group coverage would have been between 8% and 9.8% of their total household income.

I recently received an email from the Colorado Division of Insurance at the Department of Regulatory Agencies (DORA) stating that they will be holding several webinars and community meetings over the next few weeks.  DORA stated that these events were being held to help both businesses and individuals better understand their health insurance. Their stated goal is to “help educate consumers about the factors that cause premium increases, what’s happening with Federal Health Care Reform, and how they can make more informed decisions when purchasing insurance”. The next community meeting will be held today at 6:30 at Merrill Middle School Auditorium in Denver. For additional meetings a listing can be found here. In addition for businesses, the next webinar will be October 18th at noon. Those businesses interested in attending can go here to link with webinar.

Also along with these events, a new website resource from DORA will be introduced to provide additional information concerning health insurance. DORA states that the website has been established to provide “more information than ever on health insurance premium rate review, how to shop for insurance, and how the Division of Insurance can help consumers when they need information or wish to file a complaint because their carrier does not meet expectations”.