Cook Wealth Management Group

Affordable Care Act Provisions In Effect

Prescription Coverage under the Affordable Care Act

The Affordable Care Act, enacted on March 23, 2010, contains a number of tax provisions, some of which are not yet in effect. Below are some of the provisions that are in effect now.

Excise Tax on Indoor Tanning Services

A 10 percent excise tax on indoor UV tanning services went into effect on July 1, 2010.


  • phototherapy services performed by a licensed medical professional on his or her premises
  • certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee

Employer-Provided Health Coverage Not Taxable — Reporting Optional in 2011

Starting in tax year 2011, the Affordable Care Act asks that employers report the value of the health insurance coverage they provide employees on each employee’s annual Form W-2. However, to provide employers the time they need to make changes to their payroll systems, the IRS will defer the reporting requirement for 2011, making it optional in 2011 but required in 2012. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable.

Adoption Credit

The Affordable Care Act raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. It also makes the credit refundable, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply.

Changes to Flexible Spending Arrangements

Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan. A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).

Health Coverage for Older Children

Health coverage for an employee’s children under 27 is now generally tax-free to the employee. This expanded health care tax benefit applies to various workplace and retiree health plans. These changes immediately allow employers with plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans. More information is available from the Department of Health and Human Services and Department of Labor. Medicare Part D Coverage Gap “donut hole” Rebate The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. In 2011, if you reach the coverage gap, you will receive a 50% discount when buying Part D covered brand-name prescription drugs. More information can be found at

Small Business Health Care Tax Credit

Included in the Patient Protection and Affordable Care Act approved by Congress and signed into law by President Obama, this credit is one of the first health care reform provisions to go into effect. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent (FTE) employees — paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

Information provided by the IRS.