Category Archives: Benefits

Three basic tax areas of the Affordable Care Act

Benefits for Lower Income Taxpayers
Costs for Higher Income Taxpayers
Employer Responsibility

There is a Health Insurance Premium Tax Credit that benefits low and medium income level taxpayers. Medicare taxes are expanded and a new levy is created.  A good number of small businesses are exempt from the employer requirement.

Benefits for the less affluent taxpayers

Tax credit for health insurance. The legislation offers a tax credit to low and medium income level taxpayers. Starting 2014, there is a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance from an Exchange.

The refundable credit is paid to the insurer to help fund the purchase of certain health insurance plans. An eligible individual enrolls in a plan offered through an Exchange and conveys his or her income to the Exchange. The exchange analyzes the information and calculates the credit. The IRS pays the insurer. The premium amount the individual pays the insurer is the cost minus the credit. Employed individuals pay with payroll deductions.

The credit will be available for individuals and families with certain incomes levels and if they are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage.

The income test is up to 400% of the federal poverty level. The income thresholds are approximately $45,000 for an individual and $90,000 for a family of four.

Cost for more affluent taxpayers

Higher Medicare taxes. A supplemental Medicare is imposed Singles earning more than $200,000 and married couples earning more than $250,000. There is also a new Medicare levy on investments.

Medicare Taxes are the primary source of money for Medicare’s hospital program. The program pays hospital bills for participants older than 65 and the disabled. Right now workers and employers each pay 1.45%. Self-employed people pay both sides 2.90%   Under the new law, in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Self-employed persons will pay 3.8% on earnings over the threshold.

Medicare tax levy on investments. Right now, Medicare tax is only assessed on wages. Beginning in 2013, a Medicare tax will, for the first time, tax investment income. The new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000. Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is includes deductions against income.

Tax Tip

The new tax levy is not applicable to retirement accounts such as 401(k) plans. Also, the Medicare tax only applies to incomes in excess of the $200,000/$250,000 thresholds. For example a married filing joint return has $200,000 in wages and $100,000 in gains, $50,000 is taxed.

The employer mandate This is relevant to an employer who has employed an average of at least 50 full-time employees. This tax term is an “applicable large employer,” someone who employed an average of at least 50 full-time employees during the preceding calendar year. The law requires employers to offer coverage.

The following information is not intended to replace the services of a professional. Please consult a CPA or an Attorney who can better understand your particular circumstances. Trying to set up and/or operate a corporation of any kind without competent professional guidance is asking for serious trouble. Please contact us.

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Filed under Benefits, Deductions, Tax Planning

Free Fringe Benefits For Pass-Through Entity Owners

Pass-Through Entities which include Partnerships, limited liability companies (LLCs) treated as partnerships, and S corporations have distinct tax and non-tax advantages.

The facts are that business owners considering these forms of business ought to know that fewer tax-free and tax-favored fringe benefits are available to owners of passthroughs than to shareholder-employees of C corporations. This commentary evaluates which fringe benefits can be made available to the owners of these companies.

Working condition fringe benefits

Property or services supplied by an employer to an employee are tax-free working condition fringe benefits (WCFBs) if the employee would be entitled to a business expense deduction is he/she paid for it.

Thus, owners may receive the following WCFBs tax-free:

  • Business-related use of a company auto, if properly substantiated. The personal-use value of the auto must, however, be treated as compensation income.
  • The business-use portion of company paid country club dues, even though the dues are completely nondeductible.
  • Job-related education expenses paid by the firm.
  • The use of a cell phone provided to an employee primarily for non-compensatory business reasons.

De minimis fringe benefits

“De minimis fringe” is the value of a property or service of which is so small as to make accounting for it unreasonable or administratively impracticable. For purposes of the tax-free de minimis fringe benefit rules, “employees” include any recipient of a fringe benefit. So partners are entitled to get tax-free supper or supper money or local transportation fare if provided on an occasional basis in connection with overtime work.

Other de minimis fringes include:

  • Traditional birthday or holiday gifts of property (not cash) with a low fair market value.
  • Occasional theater or sporting event tickets, and fruit, books, or similar property provided under special circumstances (e.g., on account of illness, outstanding performance, or family crisis)
  • Traditional awards (such as a gold watch) upon retirement after lengthy service.
  • Personal use of a cell phone provided primarily for non-compensatory business reasons.

For more advice concerning the benefits Owners of Pass-Throughs can claim please contact Peter Rudolph,CPA 954 596 1120

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Filed under Benefits, Entity Choice, Tax Planning