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Supreme Court decision impacts businesses, individuals and their taxes

June 28, 2012

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On June 28 the U.S. Supreme Court, in a much-anticipated ruling, upheld much of the Patient Protection and Affordable Care Act of 2010. The decision has far-reaching implications, many of which will financially impact businesses and individuals.

The 192-page opinion will need further analysis, but according to a preliminary interpretation, without congressional action, the provisions of the health care act that already have gone into effect will stand, and the provisions that are scheduled to go into effect in future years will, indeed, go into effect.

One of the two main provisions at issue was whether it was constitutional for the act to require that, starting in 2014, most Americans have a basic level of health insurance or pay a penalty. In a 5-4 decision, the Court found that the provision permitting the penalty to apply was constitutional within Congress’s power under the taxing clause.

Some key provisions affecting businesses include the following:

Tax credits for certain small businesses that provide health care coverage to employees. This provision went into effect in 2010 and is available through 2013.

Penalties for failing to provide health care coverage. These are scheduled to go into effect in 2014.

Various requirements related to the scope of health care coverage provided. Examples include coverage of employees’ young adult children and limits on waiting periods for coverage under a group policy. Some went into effect in 2010; others are scheduled to go into effect in 2014.

And, here are some key provisions we believe are still applicable and will impact many individuals:

Higher Medicare taxes for high-income taxpayers. Starting in 2013, taxpayers with earned income in excess of certain limits will pay an additional 0.9% Medicare tax on the excess. In addition, taxpayers will pay a new, 3.8% Medicare tax on unearned income, such as interest, dividends, rents, royalties and certain capital gains, to the extent that their modified adjusted gross income exceeds certain thresholds.

Increase in medical expense deduction floor. Starting in 2013, the act raises the threshold for deducting unreimbursed medical expenses from 7.5% to 10% of adjusted gross income.

Changes to Flexible Spending Accounts (FSAs) for health care. Starting in 2011, tax-free FSA distributions could no longer be used to pay for unprescribed over-the-counter medicine. Starting in 2013, annual contributions to FSAs for medical expenses will be limited.

If you’d like to learn more about how the Supreme Court’s decision might affect your business’s finances or your own, please contact us. We can help businesses determine what, if any, changes they may be required to make — or may want to make — to the health coverage they offer in light of the decision.

Again, further scrutiny of this decision is required, and a more in-depth analysis will be forthcoming.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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