The Patient Protection and Affordable Care Act of 2010, in concert with the enactment of the Health Care and Education Tax Credits Reconciliation Act of 2010, resulted in many changes to the US tax code. As such, there are several tax implications for individuals and businesses.


Healthcare Exchanges

Healthcare Exchanges, also called Health Insurance Marketplaces, officially opened for enrollment in October 2013. Some of these exchanges are run by the state in which you reside. The federal government runs others.

Individuals (including self-employed) without insurance or buying insurance independently (i.e., those without employer coverage) can use these marketplaces. The health insurance coverage purchased on the exchange is effective on January 1 of each year. When you get health insurance through the Marketplace, you may be able to get the new advance Premium Tax Credit that will immediately help lower your monthly premium.

Individual Mandate

Background.¬†Under the Affordable Care Act and for tax years 2014 – 2018, United States citizens and legal residents were mandated to obtain minimum essential health care coverage for themselves and their dependents, have an exemption from coverage, or make a payment when filing a tax return. The Individual Mandate is also known as the Individual Shared Responsibility Payment. Only the amount of income above an individual’s tax filing threshold ($10,000 indexed for inflation) was used to calculate the penalty.

Starting in 2019, the individual mandate was eliminated. However, five states – California, Massachusetts, New Jersey, Rhode Island, and Vermont – and the District of Columbia still have their own individual mandates.

Most people already have qualifying health care coverage and do not need to do anything more than maintain that coverage throughout the year. Self-insured ERISA policies used by larger employers, Medicare, Medicaid, and CHIP (Children’s Health Insurance Program), and all of the health insurance plans offered by the exchanges fall under the minimum essential health care coverage category.

Certain individuals were exempt from the tax and include:

  1. people with religious objections;
  2. American Indians with coverage through the Indian Health Service;
  3. undocumented immigrants;
  4. those without coverage for less than three months;
  5. those serving prison sentences;
  6. those for whom the lowest-cost plan option exceeds 9.12% of annual income (starting January 1, 2023); and
  7. those with incomes below the tax filing threshold who do not file a tax return.

Refundable Tax Credit

Effective in 2014, certain taxpayers can use a refundable tax credit to offset the cost of health insurance premiums so that their insurance premium payments do not exceed a specific percentage of their income. Qualified individuals have incomes between 133 and 400 percent of the federal poverty level. A sliding scale based on family size is used to determine the amount of the credit. In addition, married taxpayers must file joint returns to qualify.

FSA Contributions

FSA (Flexible Spending Arrangements) contributions are limited to $2,500 per year starting in 2013 and indexed for inflation after that. For 2023, the limit is $3,050 (up from $2,850 in 2022).

Rules for HSAs and Archer MSAs

Tax on non-qualified distributions from HSAs and Archer MSAs used to cover the cost of over-the-counter medicine without a script increased to 20 percent starting in 2011. Medical devices, eyeglasses, contact lenses, copays, and deductibles are not affected, nor is Insulin, even if it is non-prescription.

AGI Limits for Deductible Medical Expenses

The deduction threshold of 7.5 percent of AGI for all taxpayers (Tax Cuts and Jobs Act of 2017) was made permanent by the pandemic tax relief package signed into law on December 27, 2020.

Health Coverage of Older Children

The cost of employer-provided health care coverage for children (through age 26) on tax returns is excluded from gross income.

Medicare Tax Increases for High Income Earners

Starting in 2013, there is an additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly). These amounts are not indexed to inflation.

Also starting in 2013, there is a new Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the new tax.

Exemptions are available for business owners, and income from certain retirement accounts, such as pensions, IRAs, 401(a), 403(b), and 457(b) plans, is exempt.



If you run an income-generating business without employees, you’re considered self-employed (not an employer). You can get coverage through the Marketplace and use it to find coverage that fits your needs. You are not considered an employer even if you hire independent contractors to do some work.

If you currently have individual insurance, that is, a plan you bought yourself and not the kind you get through an employer, you may be able to change to a Marketplace plan. Furthermore, you can’t be denied coverage or charged more because you have a pre-existing health condition.

Small Businesses (50 or Fewer Employees)

If you have 50 or fewer full-time equivalent (FTE) employees (generally, workers whose income you report on a W-2 at the end of the year), you are considered a small business under the health care law.

As a small business, you may get insurance for yourself and your employees through the SHOP (Small Business Health Options Programs) Marketplace. This applies to non-profit organizations as well.

If you have fewer than 25 employees, you may qualify for the Small Business Tax Credit (see next section). Non-profit organizations can get a smaller tax credit.

As an employer, you must notify your employees of coverage options available through the Marketplace. You must provide this notice to all current employees and each new employee effective October 1, 2013, regardless of plan enrollment status or full or full, or part-time employment. The Department of Labor has sample notices that employers can use to comply with this regulation. One notice is for employers who do not offer a health care plan, and the second is for employers who offer one.

Small Business Health Care Tax Credit

Small businesses and tax-exempt organizations that employ 25 or fewer full-time equivalent workers with average incomes of $56,000 or less in 2021 (indexed for inflation annually) and that pay at least half (50 percent) of the premiums for employee health insurance coverage are eligible for the Small Business Health Care Tax Credit.

Starting in 2014, the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers). The tax credit is highest for companies with fewer than ten (10) employees, paid an average of $30,700 or less in 2023 ($28,700 in 2022). The smaller the business, the bigger the credit is. The credit is available only if you get coverage through the SHOP Marketplace.

Additional Tax on Businesses Not Offering Minimum Essential Coverage

Effective January 1, 2015, an additional tax is levied on businesses with 50 or more full-time equivalent (FTE) employees that do not offer minimum essential coverage. This penalty is sometimes called the Employer Shared Responsibility Payment or “Pay or Play” penalty.

For tax years 2015 and after, an applicable large employer is liable for an Employer Shared Responsibility payment only if:

(a) The employer does not offer health coverage or offers coverage to fewer than 95 percent of its full-time employees and the dependents of those employees, and at least one of those full-time employees receives a premium tax credit to help pay for coverage on a Marketplace;


(b) The employer offers health coverage to all or at least 95 percent of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value.

Employers with fewer than 50 FTE (full-time equivalent) employees are considered small businesses and are exempt from the additional tax.

Employers subject to the employer shared responsibility provisions (Applicable Large Employers or ALEs) also have information reporting responsibilities regarding minimum essential coverage offered to employees. These responsibilities require employers to send reports to employees and the IRS. Information reporting returns will be filed and furnished in early 2023 for 2022. An employer that sponsors self-insured health insurance coverage – whether or not the employer is an ALE – has insurer information reporting responsibilities as a provider of minimum essential coverage.

The annual Employer Shared Responsibility Payment amount is based partly on whether you offer insurance.

  • If you don’t offer insurance, the annual payment is $2,000 (indexed for inflation) per full-time employee (excluding the first 30 employees).
  • For an employer that offers coverage to at least 95 percent of its full-time employees (and their dependents) but has one or more full-time employees who receive a premium tax credit, the payment is computed separately for each month. The monthly payment equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $4,320 in 2023. The payment amount for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 30) multiplied by 1/12 of $2,880 in 2023.

Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible. In addition, Employer Shared Responsibility payments (either $2,000 or $3,000) are indexed to inflation beginning in years after 2014. For 2023, these numbers are $2,880 and $4,320, respectively.

A health plan meets minimum value if it covers at least 60 percent of the total allowed costs of benefits provided under the plan. All plans in the Marketplace meet minimum value, so any coverage offered through the SHOP Marketplace should qualify.

Excise Tax on Indoor Tanning Services

A 10 percent excise tax on indoor tanning services went into effect on July 1, 2010. The tax doesn’t apply to phototherapy services a licensed medical professional performs on their premises. There’s also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.

Health Care Taxes Repealed

Three healthcare-related taxes enacted to fund the Affordable Care Act – and that had previously been delayed or suspended – were repealed under the Further Consolidated Appropriations Act, 2020:

  • Medical device excise tax
  • Annual fee on health insurance providers
  • Excise tax on high-cost employer-sponsored health coverage (“Cadillac tax”)

General Ledgers Accounting and Tax Services, Inc.
517 S 4th Ave
Brighton, CO, 80601
Phone: (303) 659-4013