Health Care reform will significantly impact how businesses provide and pay for insurance for their employee’s.    In sum, there are credits available to businesses and employee’s to purchase insurance and fee’s imposed if no insurance offered.   Here are some of the details.

Beginning in 2014, employers with at 50  full-time employees, and do not offer health insurance, may be assessed a fee of $2,000 for each full-time employee  if one emplyee is receiving a premium credit.     Which raises the question of what exactly is a premium credit.  A premium credit can be used to reduce the premium cost for families by eligible individuals and families who purchase health insurance through state-based exchanges to reduce the premium cost.

Even employers who do offer coverage may face a fee if at least 1 full-time employee is receiving a premium credit. The fee is either $3,000 per employee receiving the credit or $2,000 for each full-time employee, whichever total is less. Employers with fewer than 50 full-time employees are exempt from these fees. Employers with 200 or more employees must automatically enroll employees in health insurance plans offered by the employer. The employee may voluntarily opt out of the employer’s plan.

In addition, employers that offer employee health insurance must offer a free choice voucher to employees who elect to enroll in a state-based American Health Benefit Exchange plan. The value of the voucher is equal to the amount the employer would have paid to cover the employee under the employer’s plan. Employees may enroll in an Exchange plan if the employee’s income is less than 400% of the Federal Poverty Level (FPL) and the employee’s cost to participate in the employer’s plan is between 8% and 9.8% of the employee’s income. The voucher can be used to offset the employee’s cost to participate in the Exchange plan.

As an incentive for small businesses to offer employee health insurance, from 2010 to 2013, employers with 25 or fewer full-time employees with average annual wages less than $50,000 may be eligible for a tax credit of up to 35% of the employer’s total premium cost. Beginning in 2014, small businesses that buy insurance through state Exchanges for their employees may receive a credit of up to 50%. In either case, the credit decreases as the number of employees and average annual wage increases.

By 2014, in an effort to promote wellness and decrease health insurance costs, employers will be able to offer employees rewards, such as premium discounts and added benefits, for participating in wellness programs and meeting certain health-related standards. The value of the rewards can equal as much as 30% of the cost of coverage and may even reach 50% in some cases.

Employers who provide insurance for retired employees who are over age 55, but not yet eligible for Medicare, may receive reimbursement for 80% of retiree claims between $15,000 and $90,000. This temporary reinsurance program begins in 2010 and is available until 2014. On the other hand, employers who currently receive a tax deduction for Medicare Part D drug subsidy payments will see that deduction eliminated in 2013.

Small businesses with up to 100 employees may be able to purchase health insurance through state-based Small Business Health Options Program (SHOP) Exchanges by 2014. The Exchanges will offer at least four benefit categories of plans based on covering an increasing percentage of benefit costs.

Complicated?  Absolutely and  it will be critical for business to stay on top of the upcoming changes.   

Presentation Builder Tutorial

Client: My Presentation Templates kyle.meyer@mcleanam.com kyle@meyerfinancialplanning.com Presentation: New Presentation Open Presentation

Save Clear All Docs

For high income earners,  there will be  a new 3.8%  Medicare surtax that will be assessed in 2013  on the lesser of:

• Net investment income or
• The excess of “modified adjusted gross income” over the “threshold amount”

Net investment income is the sum of gross investment and includes:

• Interest
• Dividends
• Capital Gains
• Annuities income
• Rents&Royalties

• Passive activity income

Importantly, investment income does not include distributions from IRA’s or other qualified retirement plans.

The taxable income threshold amounts are:

• Married taxpayers filing jointly-$250,000
• Individual Tax Payers-$200,00
• Trusts and Estates $11,200

In sum, if your modified adjusted gross income is below  threshold amounts, then this surtax will not affect you.   However, if your above the threshold you will be taxed to lesser of investment income or excess over MAGI.

This means that combined with the expiration of the Bush Tax cuts, the top federal tax rate in 2013 for investment income can reach 23.8% from the current 15% levels.  Also, qualified  dividend income will  now be treated as ordinary income which will move to 39.6%.

Deep in the weeds of the Health Care reform are a few notable pieces related to college planning.

The first is that the government has cut out the private lenders in the granting of loans and as a result all loans are facilitated directly from the US Government.  This is good news are rates will be a bit lower for parents (The Plus loans) will be  7.9% instead of 8.5% currently being charged by private lenders.

Also, starting in 2014,  the act  limit payments to 10% of discretionary income for the student and will forgive debt after 20 years. Previsously, it was 20% of discretionary income.

Additionally, funds were increased for Pell Grants.  These are funds for the most disadvantaged.

For more information on college planning and financial aid a couple of good websites are

For more information on financial aid and loans, check out:

www.finaid.com

www.savingforcollege.com

Both are top notch sites with good information readily available.

If you’re in the market for a new home and hope to take advantage of the first-time homebuyer tax credit, you’ll need to purchase a principal residence before May 1, 2010 (or before July 1, 2010 if you enter into a written binding contract prior to May 1, 2010). If you–and your spouse, if you’re married–did not own any other principal residence during the three-year period ending on the date of purchase, the credit is worth up to $8,000 ($4,000 if you’re married and file separate returns). If you–and your spouse, if you’re married–have maintained the same principal residence for at least five consecutive years in the eight-year period ending at the time you purchase a new principal residence, the credit is worth up to $6,500 ($3,250 if you’re married and file separate returns).

The credit, however,  is limited to those whose modified adjusted gross income  less than $125,000.  While this can restrict many, it does offer an opportunity for your kids in college.   In many cases, real estate around a college town can be appealing and if your kid will stay in at the college for three years (we hope), there may be an overall benefit of having your college kid purchase a home versus paying rent for 3 or 4  years.   You will have do your homework to see if this can make sense overall in your overall financial planning.

At the beginning of the year, the conventional wisdom was that mortgage rates on the 30 year fixed would drop to around 4.5% at some point and then move higher.  Well, the conventional wisdom was mostly right this time.  They have touched 4.5% this year but have drifted lower in three distinct moves with the most recent hitting record lows last week   Currently the 30 year according to bank rate average around 4.97 with the 15 year fixed at about 4.25%.  To obtain the rates, an average of 1.17% point was charged.  A good source for rates is www.bankrate.com

Many have already refinanced this year, but for those that haven’t now is another opportunity

While most of the talk in Washington centers on health care and Afghanistan, there is a considerable amount of energy focused on financial reform to prevent another “market meltdown” we have seen over the last couple of years.

One piece of the debate is how to regulate advisors, brokers and planners.  Each currently has a different set of rules covering their behavior towards clients.  Brokers are held to a suitability standard which means they need to have a reasonable basis for the recommendation and “know their client.”  Additionally their  advice should be “incidental” to the transaction.   However, Advisors registered with the Securities and Exchange condition are held to a higher “fiduciary” standard that entails the advice be prudent and in the interest of the client.   This topic can be somewhat arcane, but a recent WSJ video does a nice job of pointing out the key differences.

http://link.brightcove.com/services/player/bcpid452319854?bctid=51077511001

Watch for more as congress debates on how best to regulate the advice providers.

A common planning strategy when one has left a company with a large stock position with a low cost basis is to employ Net Unrealized Appreciation (NUA).  This strategy allows for the transfer of the stock from a 401k to a taxable account with the basis in the stock taxed at ordinary income rates and the gain, the net unrealized appreciation, taxed at capital gain rates once the stock is sold.  If you are under 55, you will need to consider the impact of the 10% early withdrawal penalty on the cost basis of the stock.  The additional benefit in this strategy is the flexibility gained in the ability to liquidate the stock position overtime at the beneficial capital gain rates.

However, now according to IRS notice 2009-75 you have an additional choice to consider within the NUA strategy as you can now move the company stock to a Roth IRA.  In this case, the cost basis will be taxed at ordinary income rates, but the Net Unrealized Appreciation will be taxed at capital gain rates at the time of distribution, not when sold as in the above example.  Distributions from these accounts then would be tax free because you already paid ordinary income on the basis and capital gains on the net unrealized appreciation.

Does a Roth NUA strategy make sense?   As a practical matter, probably not.   Many who use the NUA strategy are attracted to the idea of moving money from “tied” up resource to one that allows for more flexibility at a reasonable tax hit.  Nevertheless, the argument can be made that if you have a longer time horizon, or are thinking about the move to a Roth as an estate planning strategy, then the Roth NUA strategy would be something to consider