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Flexible Spending Account and Health Savings Account
Changes in 2011

Back in September of 2010 the IRS issued new guidelines regarding the usage of FSA's to pay for the over-the-counter medicines and drugs. Around the same time these guidelines were introduced to The Affordable Care Act made changes concerning similar plans that went into effect as of January 1,2011. Under this new standard the cost of an over-the-counter medicine or drug cannot be reimbursed unless the drug or medicine was written as a necessary prescription. There are a few exceptions: this rule does not affect insulin, (even if purchased without a prescription) medical devices, eye glasses, contact lenses, co-pays and deductibles. This new rule applies to purchases made on or after the effective date of January 1,2011. This means that any drugs or medicines that may have been purchased prior to the effective date may still be redeemable in 2011 if allowed by the employer's plan. A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSA's) and Archer Medical Savings Accounts (Archer MSAs).

As decisions are being made regarding health plans and options available to employers for 2011, they should take into consideration the new guidelines and standards that have been implemented for the New Year!


Most Recent Tax Updates and Changes

"The new health care reform law is chock-full of new taxes and tax increases that will affect many individuals and businesses, but it will be years before most of these hikes take a bite out of your -- or your company's -- wallet. The law also has tax breaks to help both individuals and small businesses pay for insurance."

After finding the introduction to this article your about to read, we at Corporate Benefit Plans found it was necessary to share such an article with our valued followers. Tis the season for taxes and unless your informed on the changes taking place, there are obstacles to watch out for and opportunities to take a hold of that you may not catch.

13 New Changes That Have Been Implemented Most Recently

1. A new 10% excise tax on indoor tanning services on services provided after June 30, 2010.

2. The new law gives small firms tax credits as incentives to provide coverage, starting this tax year. Employers with 10 or fewer workers and average annual wages of less than $25,000 can receive a credit of up to 35% of their health premium costs each year through 2013. The credit is phased out for firms larger than that and disappears completely if a company has more than 25 employees or average annual wages of $50,000 or more.

Beginning in 2014, the system changes. The law requires each state to establish a health insurance exchange -- a marketplace where individuals, the self-employed and small business can buy health insurance coverage. The government-regulated exchanges would offer insurance policies with different levels of coverage and price tags. Small firms that sign up with one of the health exchanges to be created can receive a credit of up to 50% of their costs -- with the same phaseouts for average income and size as the earlier program. The credit disappears after 2015.

3. A requirement that businesses include the value of the health care benefits they provide to employees on W-2s. Although this was originally required beginning with W-2s for 2011 - those issued early in 2012 - in October, a one-year delay was announced. Employers may voluntarily report the value of health benefits they provide on 2011
W-2s, but this will not be mandatory until the 2012 forms. The amount reported is not considered taxable income.

4. Elimination of a deduction employers now take for providing Medicare Part D prescription drug coverage to their retirees to the extent that the federal government subsidizes the coverage. This will not take effect until 2013.

5. Doubling the penalty for nonqualified distributions from health savings accounts, to 20%, beginning in 2011.

6. A limit on the amount that employees can contribute to health care flexible spending accounts to $2,500 a year, but the cap won't take effect until 2013. This was previously left to the employer's discretion, with many firms choosing a limit of $4,000 to $5,000 or so.

7. A ban on using funds from flexible spending accounts, health reimbursement arrangements or health savings accounts for the cost of over-the-counter medications, starting in 2011.

8. Starting in 2013, a 0.9% Medicare surtax will apply to wages in excess of $200,000 for single taxpayers and over $250,000 for married couples. Also, for the first time ever, a Medicare tax will apply to investment income of high earners. The 3.8% levy will hit the lesser of (1) their uneamed income or (2) the amount by which their adjusted gross income exceeds the $200,000 or $250,000 threshold amounts. The new law defines unearned income as interest, diviends, capital gains, annuities, royalties, and rents. Tax-exempt interest won't be included, nor will income from retirement accounts.

9. A hike in the 7.5% floor on itemized deductions for medical expenses to 10%, beginning in 2013. But taxpayers age 65 and over are exempt from the cutback through 2016.

10. A new 40% excise tax, beginning in 2018, on high-cost health plans, levied on the portion that exceeds $10,200 for individuals and $$27,500 for families. The provision is aimed mostly at gold-plated plans offered by employers, although it can affect individual policies.

11. A new tax on individuals who don't obtain adequate health coverage by 2014 -- this is often referred to as the individual mandate. The tax is to be phased in over three years, starting at the greater of $95, or 1% of income, in 2014, and rising to the greater of $695, or 2.5% of gross income, in 2016.

12. Providing a refundable tax credit, once the individual mandate takes effect in 2014, to help low-income folks purchase coverage. To be eligible, a person's household income must be between 100% and 400% of the federal poverty level, generally around $11,000 to $44,000 for singles and $22,000 to $88,000 for families. The credit is a sliding scale, based on income. Low-Incomers get a credit for all costs. Then, as income rises, the credit phases out.

13. A nondeductible fee charged to businesses with 50 or more employees if the firms fall to offer adequate coverage. The fee will equal $2,000 times the number of employees, though it won't count the first 30 workers in that calculation.