Health Care Act Changes

Here's a high level list of the changes now in effect related to the Patient Protection and Affordable Care Act that was signed into law in March of 2010.  For most people, health insurance won't include these features until you start next year's coverage.  Still, it's nice to know what to expect. 

Expanded Coverage for Children

Taxpayers who get health insurance through their employers can now receive benefits for children under 27-years old tax free. This is effective as of March 30, 2010. This benefit applies to most workplace and retiree health plans. If you qualify for the self-employed health insurance deduction on your federal tax return, you are also allowed to include your child or children until they are 27. This new age standard replaces the lower age limits that applied under prior tax law, and it also eliminates the requirement that the child qualify as a dependent for tax purposes.

Employers have the option to permit coverage as a tax free benefit until the child’s 27th birthday. If your employer provides health insurance, the company is required to make the coverage available as a tax free benefit until the child reaches their 26th birthday.

Reporting Health Insurance Benefits as Wages

As the law is written, on January 2011 employers were supposed to change how health insurance benefits are reported in terms of wages. When employees receive their 2011 Form W-2 (in January of 2012), the value of the health insurance coverage provided to the employee for the year was supposed appear on the form. The reporting is for informational purposes only. The value of the employer contribution to health coverage continues to be excludable from the employee’s income and is not taxable.

Someone at the IRS decided this was one task too many for employers, at a time when so many other aspects of benefits adminsitration are also changing.  Notice 2010-69  provides "interim relief" to employers by making the provision optional for 2011.  When it becomes mandatory is not included in the notice. 

Changes to Flexible Spending Arrangements and Health Savings Accounts

January 2011 will bring changes to what medications can be reimbursed under a Health Reimbursement and Flexible Spending Account. These changes will also be mirrored for Health Savings Accounts and Archer Medical Savings Accounts. Through December 2010 you can continue to use the accounts for expenses related to non-prescription medications. However, starting in January, only medications prescribed by your doctor will be reimbursed from these plans. The one exception is insulin. You can still get reimbursed for insulin purchases after January 2011.

The switch occurs in January, so you can stock up medications in December if that is helpful to you. Expenses for medical devices, eyeglasses, contact lenses, co-pays and deductibles remain eligible for plan reimbursement. If you have a special debit card you use with the plan, the functionality will be adjusted so you can’t use it for purchasing items like Aspirin.

Medicare Part D "Donut Hole" Rebate

If you have Medicare prescription drug coverage and are not getting Medicare Extra Help, you get a rebate check in 2010 if you reach the coverage gap (also known as the "donut hole"). This $250 dollar check is sent automatically by Medicare. This check is NOT considered income and is NOT taxable. It is a one-time only benefit, so no check in 2011. While this is referred to as a rebate check it is not paid through the IRS. If you have questions about it, go to

Health Care Tax Credit

If you are a business owner who pays health insurance premiums, you may be eligible to claim a new credit on your 2010 tax return.  Employers with

·         fewer than 25 employees (more if the company has part time employees) and

·         less than $50,000 per person in average wages may be eligible. 


The credit can be worth up to 35% of the health insurance premiums you pay as an employer.  You can read more about this here, or you can set up an appointment to review this tax credit and any other tax needs with Nicksich & Neel.  Just call us or e-mail .


The materials related to taxes on are informational only and are not meant as tax advice.  Consult with your tax advisor to determine how any item applies specifically to your situation.  We are happy to answer any questions you may have regarding this information.  Please contact us for an appointment at