ACA Employer Letter Requirement

Tax Attorneys at Ainer & Fraker, LLP Discuss the Affordable Care Act’s Employer Letter Requirement

• Employers must give employees health care notification.
• Affects employers with one or more employees and a gross income of $500,000 or more.
• Notices due October 1, 2013.
• New Employees must be notified within 14 days.

Beginning Oct. 1, any business with at least one employee and $500,000 in annual revenue must notify all employees by letter about the Affordable Care Act’s health care exchanges. The requirement applies to any business regulated under the Fair Labor Standards Act (FLSA), regardless of size. Going forward, letters are to be distributed to any new hires within 14 days of their starting date, according to the Department of Labor.

The Patient Protection and Affordable Care Act has a general $100-per-day penalty for non-compliance. Since this requirement is in the FLSA, concerns were raised in the business community that the $100-per-day penalty would apply to businesses that did not comply with the notification requirements.

On September 12, 2013, the Small Business Administration (sba.gov) posted a blog called “Myth #3: Business Owners Will Be Fined if They Don’t Notify Their Employees about the New Health Insurance Marketplace.”

The article clarifies the policy, stating: “If your company is covered by the FLSA, you must provide a written notice to your employees about the Health Insurance Marketplace by October 1, 2013. However, there is no fine or penalty under the law for failing to provide the notice.”

The Department of Labor provides model notices for employers:
• Employers with plans: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf
• Employers without plans: http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf

Please Contact a Tax Attorney at Ainer & Fraker, LLP to help ensure you are in compliance with this law.

VIDEO: Understanding the Medicare Surtax

Tax Attorneys at Ainer & Fraker, LLP Discuss  the Unearned Income Medicare Contribution Tax

As part of the Affordable Care Act (the new health care legislation), a new tax kicks in this year. The official name of this tax is the Unearned Income Medicare Contribution Tax, and even though the name implies it is a contribution, don’t get the idea that it is voluntary or that you can deduct it as a charitable contribution. It is actually a surtax levied on the net investment income of taxpayers in the higher income brackets. And although it is perceived as an additional tax on higher-income taxpayers, it can affect even those who normally don’t have higher income if they have a large income from the sale of real estate, stocks, or other investments.

The surtax is 3.8% on whichever is less: your net investment income or the excess of your modified adjusted gross income (MAGI) over a threshold based on your filing status. Net investment income is your investment income reduced by investment expenses; MAGI is your regular AGI increased by income excluded for working out of the country.

The filing status threshold amounts are:

$250,000 for married taxpayers filing jointly and surviving spouses.
$125,000 for married taxpayers filing separately.
$200,000 for single and head-of-household filers.

Example: A single taxpayer has net investment income of $100,000 and MAGI of $220,000. The taxpayer would pay a Medicare contribution tax only on the $20,000 amount by which his MAGI exceeds his threshold amount of $200,000, because that is less than his net investment income of $100,000. Thus, the taxpayer’s Medicare contribution tax would be $760 ($20,000 × 3.8%).

Investment income includes:

Interest, dividends, annuities (but not distributions from IRAs or qualified retirement plans), and royalties,
Rents (other than derived from a trade or business),
Capital gains (other than derived from a trade or business),
Home-sale gain in excess of the allowable home-gain exclusion,
A child’s investment income in excess of the excludable threshold if, when eligible, the parent elects to include the child’s investment income on the parent’s return,
Trade or business income that is a passive activity with respect to the taxpayer, and
Trade or business income with respect to trading financial instruments or commodities.

Planning Note: For surtax purposes, gross income doesn’t include interest on tax-exempt bonds. Thus, one can avoid or reduce the net investment income surtax by investing in tax-exempt bonds.

Investment expenses include:

Investment interest expense,
Investment advisory and brokerage fees,
Expenses related to rental and royalty income, and
State and local income taxes properly allocable to items included in Net Investment Income.

Do you think you will never get hit with this tax because your income is way under the threshold amounts? Don’t be so sure. When you sell your home, the gain is a capital gain, and to the extent that the gain is not excludable using the home-gain exclusion, it will add to your income and possibly push you above the taxation thresholds. And, since capital gains are investment income, you might be in for a surprise. The same holds true for gains from selling stock, a second home, or a rental. So when planning to sell a capital asset, be sure to consider the impact of this new surtax.

The surtax also applies to the undistributed net investment income of trusts and estates, and there are special rules applying to the sale of partnership and Sub-S Corporation interests.

Example: A taxpayer has owned a residential rental property for a number of years, planning to use the rental’s increased value to help fund his retirement. The taxpayer normally has income well below the threshold for this new tax. The taxpayer sells the rental and has a substantial gain. The gain from the rental sale gives the taxpayer a one-time windfall that pushes his income above the threshold for the new tax, and he ends up having to pay the regular capital gains tax plus an additional 3.8% tax on the appreciation that is attributable to the increase in value that occurred over several years.

If this surtax will apply to you in 2013, you may need to increase your income tax withholding or estimated tax payments to cover the additional tax so you can avoid or minimize an underpayment of estimated tax penalty when you file your 2013 return.

Example: A taxpayer has owned a residential rental property for a number of years, planning to use the rental’s increased value to help fund his retirement. The taxpayer normally has income well below the threshold for this new tax. The taxpayer sells the rental and has a substantial gain. The gain from the rental sale gives the taxpayer a one-time windfall that pushes his income above the threshold for the new tax, and he ends up having to pay the regular capital gains tax plus an additional 3.8% tax on the appreciation that is attributable to the increase in value that occurred over several years.

Please Contact a Tax Attorney at Ainer & Fraker, LLP to explore your options to mitigate the impact of the tax.

How Can I Prevent what Happened to Terry Schiavo from Happening to Me?

On March 31, 2005, Terry Schiavo passed away, after a fifteen (15) year legal battle over her fate. During this time, her case became a national lightning rod for the discussion over end-of-life issues.

In brief, Terry had collapsed in her home on February 25, 1990. When the EMT’s arrived, she was not breathing and had no pulse. Various emergency medical procedures were immediately enacted, however, her brain suffered from a lack of oxygen, and she fell into a Persistent Vegetative State (PVS).

In the months and years that followed, a protracted legal battle ensued between her husband, Michael Schiavo, and her parents, Robert and Mary Schindler, about what Terri would have wished for herself. Michael argued that Terri would have wished for treatment to have been withdrawn. The Schindlers argued that Terri was a devout Roman Catholic, and would never have wished to violate the Church’s teachings on euthanasia by refusing food and water treatment.

A Completely Unnecessary Tragedy

Beyond the personal and medical tragedy that befell Terry Schiavo, what made matters even worse is that the fifteen year legal battle which ensued was completely unnecessary.

To completely over-simplify the legal case: both sides argued that they knew best what Terry wanted for herself.

What was completely missing in this case was a clear and unambiguous declaration by Terry of her own decisions in this matter.

Because there was no living will in effect, both sides were forced to argue that they knew what she wanted. Had there been a valid living will, it would have been executed, and the entire legal drama could have been avoided.

What is a Living Will?

In the legal world, there is a legal document known as a living will, or here in California, an Advance Health Care Directive.

This document is designed to do two things: (1) Make your decisions regarding health care, and end-of-life decisions, perfectly clear and then (2) Nominate another person (an agent for health care) to carry out your wishes, on your behalf, if you are not able to do so yourself.

With a living will, the decisions remain your own. Your agent is not allowed to substitute their judgment for your own, their only role is to carry out your wishes. Without a living will, the hospitals and Courts will have to substitute someone else’s judgment for your own.

What Can You Do to Protect Yourself?

We understand that these types of decisions are difficult to think and talk about. However, they are far too important to leave to others.

]Here are a few guidelines for how you can protect yourself:

(1) Talk about these issues with your spouse, your family, your pastor, your spiritual mentor(s). Pray over these decisions, but also let others know what you would want.

(2) Execute a Valid Living Will or Advance Directive. As important as it is to discuss with your loved ones, it is equally important to put your wishes into legal effect, through a validly executed Living Will or Advance Directive.

(3) Tell your doctors and your family that you have executed such a document, and make sure it can be found quickly in an emergency. A recent study shows that as many as one-half of all living wills fail because they can not be located in an emergency, when they are needed most.

(4) Most importantly, don’t try to do this alone. We encourage everyone to work with appropriate legal counsel, who can provide guidance, answer questions, and ensure that your documents are legally valid.

These decisions are far too important, too personal, and too spiritual to leave in the hands of a Court, a hospital, or a third-party. You need to take control of your own decisions, by executing a valid living will or Advance Health Care Directive today.

(c) 2009 Ainer & Fraker, LLP.