ACA raises adoption credit, tax-free age for children's health benefits

  • Published
  • By Mary Lou Gorny
  • Hilltop Times editor
HILL AIR FORCE BASE, Utah --  Increasing the maximum amount of the tax credit for adoption is just one of many changes enacted into law by the Affordable Care Act signed on SFlbMarch 23, by President Barack Obama. Other aspects of the act are also worth reminding taxpayers and those who use health saving accounts (HSAs), and flex spending plans on medical expenses.

For those adopting, the maximum adoption credit is now $13,170 per child and is now refundable meaning eligible taxpayers can receive the credit even if they owe no tax for that year, according to a news release from the IRS.

The small business health care tax credit (phase one), part of the act, means that small businesses and tax exempt organizations that offer health care coverage may be eligible for health care tax credit. The purpose of this is to encourage small businesses and tax exempt organizations to offer health care coverage to their employees by making it more cost effective to do so for the companies involved.

Health benefit tax treatment for older children SEmD in keeping with the new ability of parents to add older children to their plans -- makes it possible by raising the age range to older children for the tax credit.

Inclusion of cost of employer-sponsored health insurance on Form W-2: The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan, but that is still voluntary for most large employers in 2011. Small businesses may still opt out in 2012. According to an interim guidance letter released by the IRS, "This new reporting to employees is for their information only, to inform them of the cost of their health coverage, and does not cause excludable employer-provided health coverage to become taxable; employer-provided health coverage continues to be excludable from an employeeSSRqs income, and is not taxable.SDRq

Increased tax on distribution from Health Savings Accounts (HSAs), Medical Savings Accounts (MSAs), and the limits on over-the-counter medicines: Employees and their families must have a prescription to pay for over-the-counter medicines with their tax-free Flexible Spending Arrangements and Health Reimbursement Arrangements. This does not include eyeglasses, contact lens or medical devices. According to a news release issued earlier this year, insulin is not included in this requirement.

Increased tax on distribution from HSAs, MSAs and additional taxes on nonqualified medical expenses: If using HSAs or Archer MSAs, the tax on nonqualified medical expenses will increase to 20 percent effective Jan. 1, 2011.

More information can be found on the Affordable Care Act at www.irs.gov.