ACA

Article Dean Dorton

Incentive stock options (ISOs) allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for. However, complex tax rules apply to this type of compensation.

Current tax treatment

ISOs must comply with many rules but receive tax-favored treatment:

  • You owe no tax when ISOs are granted.
  • You owe no regular income tax when you exercise ISOs, but there could be alternative minimum tax (AMT) consequences.
  • If you sell the stock after holding the shares at least one year from the exercise date and two years from the grant date, you pay tax on the sale at your long-term capital gains rate. You also may owe the 3.8% net investment income tax (NIIT).
  • If you sell the stock before long-term capital gains treatment applies, a “disqualifying disposition” occurs and any gain is taxed as compensation at ordinary-income rates.

So if you were granted ISOs in 2016, there likely isn’t any impact on your 2016 income tax return. But if in 2016 you exercised ISOs or you sold stock you’d acquired via exercising ISOs, then it could affect your 2016 tax liability. And it’s important to properly report the exercise or sale on your return to avoid potential interest and penalties for underpayment of tax.

Future exercises and stock sales

If you receive ISOs in 2017 or already hold ISOs that you haven’t yet exercised, plan carefully when to exercise them. Waiting to exercise ISOs until just before the expiration date (when the stock value may be the highest, assuming the stock is appreciating) may make sense. But exercising ISOs earlier can be advantageous in some situations.

Once you’ve exercised ISOs, the question is whether to immediately sell the shares received or to hold on to them long enough to garner long-term capital gains treatment. The latter strategy often is beneficial from a tax perspective, but there’s also market risk to consider. For example, it may be better to sell the stock in a disqualifying disposition and pay the higher ordinary-income rate if it would avoid AMT on potentially disappearing appreciation.

The timing of the sale of stock acquired via an exercise could also positively or negatively affect your liability for higher ordinary-income tax rates, the top long-term capital gains rate and the NIIT.

Planning ahead

Keep in mind that the NIIT is part of the Affordable Care Act (ACA), and lawmakers in Washington are starting to take steps to repeal or replace the ACA. So the NIIT may not be a factor in the future. In addition, tax law changes are expected later this year that might include elimination of the AMT and could reduce ordinary and long-term capital gains rates for some taxpayers. When changes might go into effect and exactly what they’ll be is still uncertain.

If you’ve received ISOs, contact us. We can help you ensure you’re reporting everything properly on your 2016 return and evaluate the risks and crunch the numbers to determine the best strategy for you going forward.

Article Dean Dorton

As expected, much of Presidential debate involved healthcare issues and, specifically, Trump’s wish to repeal the Affordable Care Act (ACA). But what will be the effect of repealing the ACA?

Rand Corp reports that all of Trump’s proposals decrease the number of insured and increase out-of-pocket spending for consumers enrolled in individual market plans. Repealing the ACA is also expected to raise the federal deficit compared to the ACA, as the ACA has provisions that reduce spending and generate revenue, such as changes to Medicare payment policy, taxes and fees levied on insurers, medical devices, and branded prescription drugs(1).

The Center for Health and Economy’s estimates, however, are much different than Rand’s estimates as it estimates 18 million fewer insured in the first year, but, the federal deficit will decrease $583 billion between 2017 and 2026(2).

It’s quite evident that the ACA won’t stay in its current form under Trump’s presidency and the Republican Congress, but the implications of repealing or even modifying the ACA are still unclear. Whatever happens, most of Trump’s wishes require an act of Congress.

For hospitals, economics firm Dobson DaVanzo report the repeal will equate to an estimated negative impact of $165.8 billion from 2018 to 2026, which is less than the ACA’s Medicare reductions to hospitals of $289.5 billion from reductions in their inflation updates(3).

Medicaid Changes

Only 19 states opted against Medicaid expansion. Repealing the ACA will put about 20 million people to uninsured status again, but Trump has pointed to a successor plan that includes the allowance to fully deduct all health insurance premiums, allowing insurance plans to be sold across state lines, ensuring price transparency for medical procedures and other health care costs, expanding access to health savings accounts that are tax free, and turning Medicaid into block grants to states, and allowing medications to be imported in an attempt to increase competition in drug pricing(2).

Trump’s wish for use of Medicaid block grants differs greatly from the entitlement program that currently exists. Under the block grant, the government will give states a lump sum of money to use at their own discretion. Many supporters of this idea believe block grants will entice states to reduce waste. The hope is that Republicans at the state levels use these block grants for their intended purpose. Another hope is that the block grants are enough to sustain the Medicaid program for each state, but hospitals and clinics should fear the loss of millions of dollars in revenue and resulting in staff reductions and scaling back services at hospitals.

As expected, much of Presidential debate involved healthcare issues and, specifically, Trump’s wish to repeal the Affordable Care Act (ACA). But what will be the effect of repealing the ACA?

Rand Corp reports that all of Trump’s proposals decrease the number of insured and increase out-of-pocket spending for consumers enrolled in individual market plans. Repealing the ACA is also expected to raise the federal deficit compared to the ACA, as the ACA has provisions that reduce spending and generate revenue, such as changes to Medicare payment policy, taxes and fees levied on insurers, medical devices, and branded prescription drugs(1).

The Center for Health and Economy’s estimates, however, are much different than Rand’s estimates as it estimates 18 million fewer insured in the first year, but, the federal deficit will decrease $583 billion between 2017 and 2026(2).

It’s quite evident that the ACA won’t stay in its current form under Trump’s presidency and the Republican Congress, but the implications of repealing or even modifying the ACA are still unclear. Whatever happens, most of Trump’s wishes require an act of Congress.

For hospitals, economics firm Dobson DaVanzo report the repeal will equate to an estimated negative impact of $165.8 billion from 2018 to 2026, which is less than the ACA’s Medicare reductions to hospitals of $289.5 billion from reductions in their inflation updates(3).

Medicare Changes

Trump promised to leave Medicare alone during his campaign. But with his choice of Rep. Tom Price to head the Department of Health and Human Services, changes to “modernize” Medicare may be looming. Medicare has been stable for more than 50 years, but Price agrees with House Speaker Paul Ryan in his approach to replace the traditional Medicare program with a system of vouchers that beneficiaries can use to purchase coverage through private plans. While many believe Medicare is financially unsustainable, others believe a voucher system is unsustainable and much less efficient than Medicare. Price and Trump have recently favored health savings accounts to help individuals pay for health insurance, but Trump has recently been quoted to not wanting to abolish Medicare. While the affluent may stay in the traditional Medicare program, the average American may opt to accept the higher deductible plans through private insurance which creates cost shifting.

One area in which both a majority of Democrats and Republicans agree is in allowing Medicare to negotiate drug prices. Trump claims to be able to save Medicare $300 billion by negotiating the purchases of drugs from major pharmaceutical companies(4).

More recently, in a December 6 letter sent to Trump and Congressional leaders, the American Hospital Association and the Federation of American Hospitals both urged Congress, under the prospective repeal, to include legislation for the restoration of the Medicare hospital inflation updates and the disproportionate share hospital payments that were cut to offset coverage gains under the ACA(3).

If you have any questions or would like to learn more, contact:

Adam Shewmaker ashewmaker@ddafhealthcare.com
Dan Schoenbaechler dschoen@ddafhealthcare.com

 

Sources:

  1. Estimating the Impacts of the trump and Clinton Health Plans; Rand
  2. The Ultimate Q&A about Health Care under a Trump Presidency; Washington Post
  3. Hospitals warn of job losses, billions in cuts if trump repeals ACA; Modern Healthcare
  4. Trump: Make Medicare Great Again; US News

Article Dean Dorton

In November, the IRS extended the deadline for employers to furnish Forms 1095-C and/or 1095-B to employees and covered individuals. The forms, which are required under the Affordable Care Act’s employer reporting mandate, are now due March 2, 2017 ― giving employers an additional 30 days to prepare and distribute 2016 forms. The extension is for 2016 tax year only, and no extension was provided to the due date for employers to submit data to the IRS.

1095-C
Applicable large employers (ALEs – generally employers with 50 or more full-time and full-time equivalent employees, measured in calendar year 2015) are required to report 2016 information about health coverage offered, or not offered, to certain employees. The ALE completes this requirement by furnishing Form 1095-C to the employee or former employee.

Access Form 1095-C

1095-B
Employers, regardless of size, who sponsor a self-insured health plan providing minimum essential coverage, are required to report information about enrollees’ coverage. To meet this requirement, Form 1095-B is generated and distributed to the primary enrollee, which also includes information on other participants enrolled in the primary enrollee’s health plan. Form 1095-B may also be generated directly from health plan providers (health insurance companies) for fully-insured plans.

Access Form 1095-B

Previous IRS Due Date New IRS Due Date
Deadline to distribute ACA reporting forms to employees and covered individuals (Forms 1095-C and 1095-B) January 31, 2017 March 2, 2017
Deadline to file ACA reporting forms with the IRS February 28, 2017 (paper)
March 31, 2017 (electronic)		 No change

Even with the extension, the IRS still recommends that employers distribute and file appropriate documents as soon as possible.

Read IRS Notice 2016-70

For additional questions on this ruling, please contact your Dean Dorton advisor or Jeff Ricketts at jricketts@deandorton.com.

Article Dean Dorton

It seems like a simple question: How many full-time workers does your business employ? But, when it comes to the Affordable Care Act (ACA), the answer can be complicated.

The number of workers you employ determines whether your organization is an applicable large employer (ALE). Just because your business isn’t an ALE one year doesn’t mean it won’t be the next year.

50 is the magic number
Your business is an ALE if you had an average of 50 or more full time employees — including full-time equivalent employees — during the prior calendar year. Therefore, you’ll count the number of full time employees you have during 2016 to determine if you’re an ALE for 2017.

Under the law, an ALE:

  • Is subject to the employer shared responsibility provisions with their potential penalties, and
  • Must comply with certain information reporting requirements.

Calculating full-timers
A full-timer is generally an employee who works on average at least 30 hours per week, or at least 130 hours in a calendar month.

A full-time equivalent involves more than one employee, each of whom individually isn’t a full-timer, but who, in combination, are equivalent to a full-time employee.

Seasonal workers
If you’re hiring employees for summer positions, you may wonder how to count them. There’s an exception for workers who perform labor or services on a seasonal basis. An employer isn’t considered an ALE if its workforce exceeds 50 or more full-time employees in a calendar year because it employed seasonal workers for 120 days or less.

However, while the IRS states that retail workers employed exclusively for the holiday season are considered seasonal workers, the situation isn’t so clear cut when it comes to summer help. It depends on a number of factors.

We can help
Contact us for help calculating your full-time employees, including how to handle summer hires. We can help ensure your business complies with the ACA.