The Patient Protection and Affordable Care Act (PPACA) has established many new fees and taxes to help fund and create dollars for expanded programs and services. Employers are responsible for some of these, whether they will directly pay new fees and taxes or administer payments through employee tax with-holdings.
Comparative Effectiveness Research Fee (CERF)
This new annual fee applies to insured and self-insured plans with plan years beginning on or after 10/2/11. The annual fee will partially fund research and evaluations performed by the Patient-Centered Outcomes Research Institute, established under the PPACA. Insurers will pay the fee on insured plans, and will build the fee into their rates. Employers will be responsible for paying the fee on self-insured plans.
- Applies for plan years beginning on or after 10/2/11
- First payments are due July 31, 2013
- Fee continues through 2019
- Initial annual fee begins at $1 per participant
- Increases to $2 for plan years beginning on or after 10/2/12
- Amount for future years is indexed to national health expenditures
How to Pay?
- Tax is self-reported on Excise Tax Form 720
Read the CERF Fact Sheet for more details
Health Plan Fees
Beginning in 2014, insurers will be required to pay two new fees as a result of provisions contained in the PPACA.
The Health Insurance Industry Fee affects health insurers (including HMOs) and is estimated to start at $8 billion in 2014. It increases year over year before reaching an estimated $14.3 billion in 2018. After 2018, it will continue to increase with premium growth. The fee applies only to insured business, and will be based on each insurer’s share of the taxable health insurance premium base (among all health insurers of U.S. health risks).
Read the Health Insurance Industry Fee Fact Sheet for more details
The Reinsurance Assessment on health plans totals $25 billion, which will be collected over a three-year period from 2014 through 2016. The majority of the money will be used to lessen the impact of high-risk individuals entering the individual market. The assessment applies to both insured and self-insured commercial medical plans. Health insurers will be responsible for the assessment on insured plans. For self-insured plans, the third party administrator is required to make the payment on behalf of the plan.
Read the Reinsurance Assessment Fact Sheet for more details
Starting January 1, 2013, there will be additional Medicare taxes for high-income individuals. Currently, both employers and employees pay a Medicare tax of 1.45% each, totaling 2.9% on all income. Employers do not have to pay any more under the new Medicare tax - they continue to pay 1.45%. However, they will have to withhold the additional tax for employees earning more than $200,000, and should plan to communicate this to impacted employees.
Employees earning up to $200,000 will continue to pay the same 1.45% Medicare tax. Employees earning more will be taxed an additional .9% on all earnings over the $200,000. Employers are liable for this added tax if they do not begin withholding the additional .9% once earnings reach $200,000.
For married couples, the additional Medicare tax is assessed on total household earnings above $250,000. Therefore, employees with income under $200,000 may actually have a joint income above this threshold. In such cases, the employee is liable for the additional Medicare tax, and will be expected to make estimated quarterly payments.
There is also an additional 3.8% Medicare tax on investment income (interest, dividends, and capital gains). The amount of investment income to be taxed is determined by the lesser of:
- The Modified Adjusted Gross Income above the threshold of
- $200,000 for an individual
- $250,000 for married or joint income
- Total investment earnings
Individuals who believe they may be assessed this new tax should consult their tax advisor or Certified Public Accountant (CPA) for guidance.