2013 PPACA Checklist - (Page 7)
Loss of Deduction for Retiree Drug
Subsidy
Effective: January 1, 2013
Small
Employers
Large
Employers
Individuals
Q.A.
Q.A.
7
If you are authorized by the Medicare Modernization Act of 2003
to a tax-free subsidy of 28 percent of the costs incurred to provide
a prescription drug benefit program to your retirees, you will be
subject to this change.
If you are authorized by the Medicare Modernization Act of 2003
to a tax-free subsidy of 28 percent of the costs incurred to provide
a prescription drug benefit program to your retirees, you will be
subject to this change.
You will NOT have any direct responsibility to comply with this
requirement.
After 2012, employers will still be provided with the tax-free subsidy, but the subsidy is not deductible
on their federal tax returns.
How does the PPACA limit employer deductions for retiree
drug coverage?
The final PPACA provision relating to employers concerns the tax-free subsidies
afforded to employers who provide drug coverage for their retirees.
Prior to January 1, 2013, employers are authorized by the Medicare Modernization
Act of 2003 to a tax-free subsidy of 28 percent of the costs they incur to provide a prescription drug
benefit program to their retirees. Employers are also permitted to deduct any outlays made with these
subsidies to provide retiree drug coverage for income tax purposes. This legislation was intended to
provide relief by reducing the coverage gap, known as the doughnut hole, for individuals in the Medicare
Part D program.
Under PPACA, employers will still receive the tax-free subsidy after 2012, but they will no longer be able
to deduct on their federal tax returns the cost of the prescription drugs to the extent reimbursed by the
federal subsidy.
What type of economic impact will this have on businesses?
The economic impact of this provision should not be underestimated. Even
though this provision does not become effective until 2013, its impact on a
company’s bottom line could be significant. A Towers Watson study estimates
that the total cost for U.S. corporate financial statements would be $14 billion
Table of Contents for the Digital Edition of 2013 PPACA Checklist
2013 PPACA Checklist
Contents
Accountable Care Organization (ACO)
Increased Federal Insurance Contributions Act (FICA) Withholding
Excise Tax on Medical Device Manufacturers
Health Flexible Savings Accounts
Loss of Deduction for Retiree Drug Subsidy
New Net Investment Income Tax
Employer W-2 Reporting Requirements
Increasing Medicaid Payments for Primary Care Doctors
Expanded Authority to Bundle Payments
Higher Income Threshold to Take Advantage of Itemized Deduction of Medical Expenses
Small Employer Tax Credits
Establishing Affordable Insurance Exchanges
Extension of the Children’s Health Insurance Program (CHIP)
Exchange Notification Requirement
2013 PPACA Checklist
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