Ask Leyla

Is it true that the Federal government is going to require individuals to have health insurance? This sounds preposterous to me!

Yes. Prior to the Health Reform legislation, Federal law did not require individuals to carry health insurance. Only Massachusetts, through its statewide program, requires individuals to have health insurance.

New law. For tax years ending after Dec. 31, 2013, nonexempt U.S. citizens and legal residents must pay a penalty if they do not maintain minimum essential health coverage, which includes government sponsored programs (e.g., Medicare, Medicaid, Children's Health Insurance Program), eligible employer-sponsored plans, plans in the individual market, certain grandfathered group health plans and other coverage as recognized by Health and Human Services (HHS) in coordination with IRS. ( Code Sec. 5000A , as added by Health Care Act Sec. 1501, as amended by Health Care Act Sec. 10106(a), and as further amended by Reconciliation Act Sec. 1002(a))

The coverage requirement does not apply to:

• Individuals who cannot afford coverage because their required contribution for employer-sponsored coverage or the lowest cost "bronze plan" in the local Insurance Exchange exceeds 8% of household income for the year. If self-only coverage is affordable to an employee, but family coverage is unaffordable, the employee is subject to the penalty if he does not maintain minimum essential coverage. However, any individual eligible for employer coverage due to a relationship with an employee (e.g. spouse or child of employee) is exempt from the penalty if that individual does not maintain minimum essential coverage because family coverage is not affordable (i.e., exceeds 8% of household income).
• Taxpayers with income below the income tax filing threshold (which for 2010 generally is $9,350 for a single person or a married person filing separately and is $18,700 for married filing jointly).
• Those exempted for religious reasons (who must be members of a recognized religious sect exempting them from self-employment taxes).
• Individuals residing outside of the U.S. (who are deemed to maintain minimum essential coverage).
• Individuals who are incarcerated or are not legally present in the U.S.
• All members of Indian tribes. ( Code Sec. 5000A(d) , Code Sec. 5000A(e) , Code Sec. 5000A(f) )

We have been operating our business as an LLC taxed as a partnership. I have decided to make an election on Form 8832 to be taxed as a corporation instead. I heard that in California the $800 minimum tax does not apply to the first year of activity as a corporation. Does this "tax holiday" apply in my situation?

The 1st year tax exemption of $800 does not apply in your situation. The exemption only applies to newly formed corporations, not entities changing into a corporate structure.

I'm a small business owner. I have heard about 2010 Health Care Act tax credit for small employers which offer health coverage to employees. What are the tax credits?

For tax years beginning after Dec. 31, 2009, an eligible small employer will be given a tax credit of 35% (25% for certain tax-exempts) for nonelective contributions to purchase health insurance for its employees. An eligible small employer generally is an employer with no more than 25 full-time equivalent employees (FTEs) employed during the employer's tax year, and whose employees have annual full-time equivalent wages that average no more than $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 fulltime equivalent wages from the employer of less than $25,000. These wage limits will be indexed to the Consumer Price Index for Urban Consumers ("CPI-U") for years beginning in 2014. In 2014 and later, eligible small employers who purchase coverage through the Insurance Exchange will be eligible for a tax credit for two years of up to 50% (35% for certain tax exempts) of their contribution (Code Sec. 45R, as added by 2010 Health Care Act Sec. 1421, as amended by 2010 Health Care Act Sec. 10105).