Healthy new laws: Health Care acts produce many tax changes.

• Author: Josephs, Stuart R.
• Position: FedTax

The following are selected highlights of the 2010 Patient Protection and Affordable Care Act (P.L. 111-148) signed into law March 23, 2010--as amended by the 2010 Health Care and Education Reconciliation Act (P.L. 111-152), signed into law March 30, 2010.

Changes Effective for Tax Years Beginning After 2009

Small Employee Health Insurance Credit: A new credit is provided for a qualified small employer for nonelective contributions to purchase health insurance for its employees.

A qualified small-business employer for this purpose generally is one with a maximum of 25 full-time equivalent employees (FTEs) during the employer's tax year and whose employees have annual full-time equivalent wages averaging a maximum of $50.000.

However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages of less than $25,000.

These wage limits are indexed for inflation for years beginning in 2014.

Qualified small tax-exempt employers are eligible for a reduced credit.

Rev. Rul. 2010-13,1RB 2010-21, contains the state average premium rates for the small group market that are needed to calculate this credit.

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Expansion of Adoption Credit & Exclusion for Employer-Provided Adoption

Assistance: The maximum adoption credit is increased $ 1,000 to $13,170 per eligible child for both non-special needs adoptions and special needs adoptions. The adoption credit maximum dollar limit and phase out are adjusted for inflation in tax years beginning after 2010. This credit also is made refundable.

The maximum exclusion for employer-provided adoption assistance also is increased $1,000 to $13,170 per eligible child. The maximum exclusion and phase-out also are adjusted for inflation in tax years beginning after 2010.

Change Effective March 30, 2010

Health Benefits for Adult Children: A child under age 27 qualifies as a dependent for employer-provided and other health coverage exclusions as well as for the deduction for health insurance premiums by self-employed individuals.

IRS Notice 2010-38, IRB 2010-20 provides guidance on this provision.

Changes Effective for Transactions Entered into After March 30, 2010

Economic Substance Doctrine Codified: The application of this doctrine is clarified and enhanced through a new uniform definition of economic substance. For any transaction for which this doctrine is relevant, the transaction is treated as having...