Health insurance benefits. The Patient Protection and Affordable Care Act of 2010 requires employers to report to their employees on Form W-2 the cost of employer-provided health insurance. This reporting requirement is optional for all employers in 2011, optional for small-employers only for 2012 and mandatory for all employers starting in 2013.
Broker reporting. The Emergency Economic Stabilization Act of 2008 expands Form 1099-B reporting to include the cost or other basis of stock and mutual fund shares sold or exchanged during the year. This reporting starts in 2011 for most stock acquisitions and in 2012 for most mutual fund transactions. The expanded form will also report whether gain or loss is long-term or short-term.
Payment card reporting. The Housing Tax Assistance Act of 2008 requires the reporting of various payment card transactions starting in 2011. Payment settlement entities are required to report payments made to merchants for goods and services in settlement of payment card and third-party payment network transactions.
Congress and the White House are currently negotiating a deficit reduction plan and a fiscal year (2012) federal budget. The deficit reduction plan and budget are expected to include a mix of revenue raisers and spending cuts. It is unlikely Congress will revive the two information reporting requirements repealed in April 2011 but lawmakers might impose other information reporting requirements. Speaking in Washington, D.C. in April 2011, IRS Commissioner Douglas Shulman endorsed making more use of information returns to increase taxpayer compliance. Shulman’s remarks may resonate with many members of Congress who are looking for ways to reduce the nation’s budget deficit.
If you have any questions about the 1099 Comprehensive Taxpayer Protection Act or information reporting in general, please contact our office.
The health care reform package (the Patient Protection and Affordable Care Act and the Health Care and education Reconciliation Act of 2010) imposes a new 3.8 percent Medicare contribution tax on the investment income of higher-income individuals. Although the tax does not take effect until 2013, it is not too soon to examine methods to lessen the impact of the tax. Certain year-end strategies might also be considered to avoid the tax, such as accelerating capital gains and other investment income into 2012 or converting a portion of your investments into tax-exempt interest.
Net investment income. Net investment income, for purposes of the new 3.8 percent Medicare tax, includes interest, dividends, annuities, royalties and rents and other gross income attributable to a passive activity. Gains from the sale of property that is not used in an active business and income from the investment of working capital are treated as investment income as well. However, the tax does not apply to nontaxable income, such as tax-exempt interest or veterans' benefits. Further, an individual's capital gains income will be subject to the tax. This includes gain from the sale of a principal residence, unless the gain is excluded from income under Code Sec. 121, and gains from the sale of a vacation home. However, contemplated sales made before 2013 would avoid the tax.
New taxes and penalties. Viewing the historic health care reform package from the context of the Tax Code, many new taxes and penalties stand out immediately above the rest. It is also important to remember many provisions have different effective dates.
- Individuals who earn more than $200,000 for the year ($250,000 for married couples) will pay an additional 0.9 percent in Hospital Insurance (Medicare) tax, starting in 2013;
- Individuals whose adjusted gross income for the year exceeds $200,000 ($250,000 for joint filers), whether from wages or otherwise, will also pay an additional 3.8 percent Medicare tax on net investment income, starting in 2013;
- Employers with 50 or more employees that do not offer coverage or offer coverage that does not meet new minimum essential coverage requirements will pay a penalty per employee, starting in 2014;
- Young adults may remain on their parents' health insurance plans through age 26;
- The health care reform package extends the income tax exclusion to any employee's child who has not attained age 27 as of the end of the tax year;
- Most individuals will be required to obtain health insurance or be subject to a penalty tax starting in 2014 (this is the so-called individual mandate);
- • Tax credits to subsidize the cost of health insurance premiums will be available to qualified individuals, starting in 2014;
Reproduced with permission from CCH’s Client Letter, published and copyrighted by CCH Incorporated, 2700 Lake Cook Road, Riverwoods, IL 60015.