The World of Computer Software/The World of Computer Software.iso/sbadv64b.zip/F241.SBE

Text File | 1992-12-01 | 9KB | 202 lines

@101 CHAP ZZ

        ┌──────────────────────────────────────────────┐
        │            MEDICAL BENEFIT PLANS             │
        └──────────────────────────────────────────────┘

Medical insurance and medical reimbursement plans) are among
the most common (and expensive) fringe benefits being of-
fered by employers in these times of skyrocketing medical
costs.  Since individual taxpayers who itemize deductions
can now only deduct their personal medical expenses and med-
ical insurance costs to the extent such costs exceed 7.5%
of adjusted gross income, this fringe benefit is more impor-
tant than ever for tax purposes, since a non-discriminatory
employer-provided health care plan is deductible to the em-
ployer but not taxable to the employee.

If you are in business for yourself, the only way to deduct
the costs of medical coverage for yourself (including reim-
bursement of medical expenses) in full is to incorporate
(as a C corporation--S corporations may deduct the cost of
such insurance on 2% shareholders, but the 2% shareholders
can only deduct 25% of the cost of such coverage, plus any
amount they may be able to get as an itemized deduction.

Unincorporated business owners do not get to deduct the
cost of their own medical coverage, in general.  However,
for tax years before 1992, self-employed individuals (sole
proprietors or partners in a partnership) may deduct 25% of
their medical insurance costs in computing adjusted gross
income if they maintain a non-discriminatory health care
plan for themselves and their employees.  (Congress, in
1990, extended this deduction through the end of 1991, and
other recent tax legislation widened this deduction to co-
ver more-than-2% shareholders of S corporations as well.)

One way to get around this problem of non-deductible medi-
cal insurance in an unincorporated business is where you
have hired your spouse as an employee of the business.  In
that case, you may cover your spouse under a company medi-
cal insurance plan, deduct such expense, and still be co-
vered yourself, as a family member under your spouse's
coverage.  While this may seem a bit contrived, the IRS
has blessed it in Revenue Ruling 71-588, 1971-2 CB 91.

A medical reimbursement plan can be a particularly attrac-
tive tax-saving device for a small corporation (C corpora-
tion), if you have only a few or no employees.  For exam-
ple, you can use the medical reimbursement plan to cover
medical expenses not covered by medical insurance, such as
annual deductibles or co-payments and other items such as
plastic surgery, hair transplants, orthodontics, dental
care and eyeglasses.  With a properly drawn reimbursement
plan, all of these expenses can be deducted from the cor-
poration's income when paid to you, and not be taxable
income to you.

              ┌───────────────────────────────────┐
              │   URGENT WARNING TO EMPLOYERS!    │
              └───────────────────────────────────┘

Note that group health care plans must allow an employee
(or other beneficiaries, such as spouse or children) to
elect continued coverage (typically for up to 18 months)
under the plan after the employee terminates employment,
dies, or otherwise would lose coverage.  Failure of an em-
ployer to provide this feature will cause payments under
the plan to become non-deductible and benefits or coverage
provided to the highly-compensated employees to become tax-
able.  In addition, the Technical and Miscellaneous Revenue
Act of 1988 added SEVERE PENALTIES, in the form of an ex-
cise tax of $100 per day per beneficiary, if the employer's
failure to provide for such extended coverage causes an
employee or other beneficiary of the plan to lose coverage
for a period of time.  Most insurance companies should by
now have re-written their policies to prevent such an oc-
currence, thus the real risk is if you have a self-insured
(i.e., uninsured) medical reimbursement plan for employees
that fails to provide elective continuation coverage as
the law requires.

@CODE: CA

        ┌───────────────────────────────────────────────┐
        │CALIFORNIA HEALTH CARE TAX CREDIT FOR EMPLOYERS│
        └───────────────────────────────────────────────┘

The state of California will soon allow a health coverage
tax credit against the income or franchise tax liability of
small employers ("eligible employers") who provide health
care coverage for certain of their employees ("eligible
individuals") and the dependents of such employees.

Effective for tax years that began on or after February 1,
1992, for amounts paid or incurred on or after January 1,
1993, this tax credit will be allowed, and it will general-
ly be the greater of $25 per month per covered individual
or 25% of the total amount paid or incurred per month for
health coverage.  Employers who also provide prenatal and
"well-baby" care or mental health benefits in addition to
basic health care coverage are granted an additional $5
per month tax credit for each covered employee, for each
of two such supplemental benefits.

(Note that employers who claim the credit cannot also claim
a tax DEDUCTION for such amounts, for California tax pur-
poses.  And the health care credit cannot be used to offset
the California alternative minimum tax or the $800 annual
minimum corporate franchise tax, but unused credits may be
carried over to subsequent years.)

To qualify for the credit, an employer must pay or incur
at least 75% of the monthly health care premiums for elig-
ible individuals and at least 75% of dependents' coverage
for each of the foregoing credits.  (However, an employer
does not necessarily have to pay for dependent coverage in
order to qualify for the credit on coverage of the eligible
employee.)  Newly hired eligible individuals must be al-
lowed to participate in the health coverage plan within 60
days of their employment date, and to elect to join the
plan at least once a year thereafter.

"Eligible employers" are those who provide the minimum re-
quired contribution for health insurance coverage and who
employ on the average during the tax year NO MORE THAN 25
EMPLOYEES.

An "eligible individual" is an employee of such an employer
who performs at least 35 hours per week of services (or is
covered by the employer's plan, even if working less than
35 hours a week), and who certifies to the employer on a
special form that he or she is a resident of California.
A owner-operator or a managing partner of the firm can
also be an "eligible individual" if performing at least 35
hours a week of service for the company.

There are other requirements, such as definitions of "basic
health care services" that must be provided under a health
care plan in order for it to qualify.  An insurer must also
provide a written certification to the employer that the
health coverage in question qualifies for the California
health care tax credit.

This tax credit, once it becomes available, will be a sig-
nificant boon to small employers who provide medical cover-
age for their employees, generally $300 or more a year per
covered employee, right off the employer's California income
or franchise tax liability.  Don't overlook this state
subsidy to your business, if your small firm qualifies, as
most will -- particularly with employee medical coverage
having become as expensive as it is.

@CODE:OF
@CODE: HI

        ┌───────────────────────────────────────────────┐
        │      HAWAII PREPAID HEALTH CARE (PHC) LAW     │
        └───────────────────────────────────────────────┘

Hawaii is one of the few states to REQUIRE that employers
provide prepaid health care benefits for their employees.
Employees must be provided medical and hospital care in
one of three ways:

    .  Medical insurance (or coverage under a health care
       plan such as Kaiser);

    .  A self-insured plan of the employer that has been
       approved by the state; or

    .  Under a collective bargaining plan that provides
       at least the minimum level of required benefits.

Note that for purposes of the Hawaii PHC law, an employer
does not have to cover the following persons:

    .  Workers employed for less than 20 hours a week;

    .  Agricultural seasonal workers;

    .  Insurance and real estate salespersons who are
       paid solely in the form of commissions;

    .  Individuals working for a son, daughter or spouse;

    .  Children under age 21 working for their father or
       mother.

The employer may pay the full cost of Prepaid Health Care
coverage but may instead choose to share part of the cost
with employees.  The amount that can be withheld from an
employee's wages is limited to one-half the premium cost,
but not to exceed 1.5% of the employee's wages.

@CODE:OF
@CODE: LS
In @STATE, they shoot the wounded, due to budget
constraints.

@CODE:OF