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Supreme Court Upholds Obamacare Tax Credits

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Jun 30th 2015
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As momentous a decision as it was, the US Supreme Court's June 25 ruling that the Affordable Care Act's tax credits for health insurance coverage extend nationwide means that things aren't changing for individual taxpayers or for companies that had been holding off on reporting requirements that aren't due yet anyway.

“The key thing is that the status quo is preserved,” says attorney Mark Luscombe, a CPA and principal federal tax analyst for Wolters Kluwer Tax & Accounting US. “The way things were handled in the 2014 tax-filing season with respect to the way the credits worked is pretty much the way they will be handled in 2015 filings.”

From a taxation perspective, the court's ruling is consistent with how the IRS interpreted the Affordable Care Act, although the justices didn't defer to the IRS, he says.

The ruling also means companies that had postponed beginning the process of complying with the healthcare law's reporting requirements now have no choice.

Large employers with 50 or more full-time (or the equivalent) employees must report to the IRS if and what health insurance they offer. The IRS uses the information to administer the employer shared responsibility provisions and the tax credit.

“The reporting issue gets tied in to the credit issue resolved by the court,” Luscombe says. “It did make some sense for employers to hold off and not gear up for recording until we saw how the Supreme Court ruled.”

Now, though, the obligation is clear. No one's in violation for 2014 because the reporting wasn't required. Larger companies' reports for 2015 are due in early 2016, he says.

“The IRS just recently put out draft forms for reporting so it's not like [companies] have been waiting behind the ‘eight ball' on compliance,” Luscombe says.

The so-called “Cadillac tax,” however, is another matter and already faces challenges.

Beginning in 2018, companies with high-cost employee insurance coverage will pay a permanent, nondeductible annual tax that is 40 percent of healthcare costs that exceed threshold limits.

Those thresholds currently are $10,200 for individual coverage and $27,500 for family coverage. They'll be updated in 2018. After that, they'll be indexed for inflation.

According to a CFO article, medical-cost inflation will push many companies over those thresholds by 2018.

“Companies are worried if their plans are in compliance or are trying to get them into compliance, so it's a current topic,” Luscombe says.

But, he adds, there's some measure of bipartisan support for a repeal of the tax. But Democrats would only support a repeal if an alternative is offered for the revenue that the tax generates, estimated by the Congressional Budget Office at $80 million over a 10-year period. And Republicans haven't offered any other resource.

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