2010 nonprofit year end checkup - schneider downs · 2014-03-17 · 2010 nonprofit year ... –...

2010 Nonprofit Year‐End Checkup

December 3, 2010

2010 Nonprofit Year‐End Checkupp p

• Accounting Standards Update – John Null

• 403(b) Aftermath – Timothy Hammer

• Year‐End Considerations – Eric Wright

• Year End Tax Compliance Checklist of Form 990 Disclosure• Year‐End Tax Compliance Checklist of Form 990 Disclosure Items – Deb Ries

• Health Care Reform Update – Tax Implications – Susan Kirsch

2

A i S d d U dAccounting Standards Update

John R. NullAudit Shareholder

Overview – Accounting Standardsg

• Trends – Setting the Stage

• Hot Topics – 2009/2010

• FASB/IASB Convergence – 2010 / 2011

• On the Horizon

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Trends – Setting the Stageg g

• Evolution of Global Economy

• Economic Turmoil/Corruption

• Scrutiny/Laws/Stimulusy

• Restatements

/• Principles‐based Standards / Convergence

• Financial Literacy/Transparency / Fair Value

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Hot Topics 2009p

• Fair Value Disclosures

• Pension DisclosuresPension Disclosures

• Impairment

• Noncontrolling InterestsNoncontrolling Interests

• Derivative Disclosures

• Business Combinations• Business Combinations

• FIN 48 – Income Tax Uncertainties

6

Hot Topics 2010p

• Revenue Recognition

• Variable Interest Entities

• More Fair Value Disclosures

• Loss Contingencies

• Risks and Uncertainties (formerly Going Concern)

• Industry‐specific (ERISA, Oil & Gas, Healthcare)

7

FASB/IASB– Convergence

• Leases

• Revenue Recognition

• Fair Value Measurement

• Comprehensive Income

• Financial Instruments• Financial Instruments

8

On the Horizon

• Seeking Clarity and Simplicity

• IFRS vs. Convergence

• Big GAAP vs. Little GAAP

• Government Involvement

i i• Economic Uncertainty

9

Appendix A

Further Details on FASBFurther Details on FASB and Convergence TopicsConvergence Topics

FASB Projectsj• Loss Contingencies

– Enhance the disclosure requirements for loss contingencies under the Loss Contingencies Topic (450)Contingencies Topic (450)

– Provide more detailed disclosures relating to the nature, potential magnitude and the potential timingand the potential timing

– When assessing the materiality of the loss contingency, an entity may not consider insurance recoveries or other sourcesconsider insurance recoveries or other sources

– Disclosures would become more extensive as information becomes available

– An entity may combine similar contingencies to help make the disclosures more understandable

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FASB Projectsj

• Loss Contingencies (continued)

– Disclosure Requirements:• All publicly available information

• Other relevant non‐privileged information to provide the users more information

• Public companies would be required to present a tabular reconciliation of the liability incurred and show components including changes in estimates, new liabilities and settlements g g ,(cash and non‐cash)

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FASB Projectsj• Loss Contingencies (continued)

– Proposed effective dates:– Proposed effective dates:

• Public entities – fiscal years ending after December 15, 2011• Nonpublic entities – fiscal years beginning after December 15, 2011 (was supposed to be 2010)(was supposed to be 2010)

– Expected to issue a final standard by the end of 2010

– Convergence with IFRS – the IASB is working on a more detailed overhaul of IAS 37, Provisions, Contingent Liabilities and Contingent Assets, which will cover initial recognition, subsequent measurement and disclosures, the FASB has focused on disclosure only with this updatefocused on disclosure only with this update

13

Joint FASB / IASB Projects/ j• Leases

– Developing an improved standard on lease accounting

– Current rules require the entity to classify the lease as an operating or a capital lease based upon the testing of four attributes

– Among the changes is to introduce a single “right‐of‐use” model in accounting for leases requiring the lessee to recognize an asset (right‐to‐use) and an associated liability to make lease paymentsassociated liability to make lease payments

– There will be no classification for operating leases, since an asset and a related liability have to be recorded for each leasey

14

Joint FASB / IASB Projects/ j

• Leases (continued)

– The current exposure drafts would not grandfather the treatment of existing leases

No more rent expense will be re characterized as interest and amortization– No more rent expense—will be re‐characterized as interest and amortization expense over the expected lease term

– Amortization expense would be over the shorter of life of the life of the asset or the term of the lease

– Lease obligations would be re‐evaluated at each reporting date (for changes in terms any contingent rentals etc )terms, any contingent rentals, etc.)

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Joint FASB / IASB Projects/ j• Leases (continued)

– The lessor would apply either a performance obligation approach or a derecognition approach when accounting for leases

– Performance obligation: the lessor recognizes the right to receive lease payments and a lease liability. The lessor does not derecognize the underlying asset

– Derecognition approach: the lessor recognizes the right to receive lease payments and derecognizes the underlying asset.

– An Exposure Draft was issued August 17, 2010p g ,

– Comments on the Exposure Draft are due by December 15, 2010

Final standard is expected by mid 2011 with an effective date of 2013– Final standard is expected by mid 2011 with an effective date of 2013

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Joint FASB / IASB Projects/ j• Revenue Recognition

– Develop a common revenue standard for all contracts that would remove inconsistencies and weaknessesinconsistencies and weaknesses

– The proposed guidance would supersede most of the guidance in the Revenue Recognition Topic (605)

– Revenue recognition would be based on the following:

• Identify the contract with a customer

• Identify the separate performance obligations in the contract

• Determine the transaction price

• Allocate the transaction price to the separate performance obligationsp p p g

• Recognize revenue when the entity satisfies each performance obligation

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Joint FASB / IASB Projects/ j• Revenue Recognition (continued)

– If the amount of consideration is variable ‐ an entity would recognize revenue from satisfying a performance obligation if the transaction price can be

bl d d b h f f ll dreasonably estimated and both of following conditions are met:

• (a) the entity has experience with similar types of contracts (or access to the experience of other entities if it has no experience of its own); andits own); and

• (b) the entity’s experience is relevant to the contract because the entity does not expect significant changes in circumstances.

– Factors in determining price include: g p

• collectability;• the time value of money;• noncash consideration; andnoncash consideration; and• consideration payable to the customer.

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Joint FASB / IASB Projects/ j• Revenue Recognition (continued)

– Differences from current GAAP

• Contracts can be written, oral or implied

• Revenue is recognized when the separate performance obligations are satisfied instead of when delivery has occurred or services have been rendered

• Collectability will only impact the amount of revenue recognized instead of preventing the revenue to be recognized

– Final standard is expected second quarter of 2011

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• Fair Value Measurement

– Objective is to develop common fair value measurement guidance and develop common disclosure requirements about fair value measurement between U.S. GAAP and IFRS

– The FASB and IASB issued Exposure Drafts on June 29, 2010, and the comment period closed on September 7, 2010

– Final document is expected in the first quarter of 2011

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• Fair Value Measurement (continued)

Topics included in the exposure drafts include:– Topics included in the exposure drafts include:

1. Highest and best use and valuation premise (Clarified the definition and intent, applies only to financial assets)

2 M i th f i l f i t t l ifi d i h h ld ’ it (U S GAAP d t2. Measuring the fair value of an instrument classified in shareholders’ equity (U.S. GAAP does not currently address this)

3. Measuring the fair value of financial instruments that are managed within a portfolio (report exposure net rather than gross based upon industry financial practice)

4. Application of blockage factors and other premiums and discounts in a fair value measurement (provide consistency between U.S. GAAP and IFRS)

5. Additional disclosures about fair value measurements. (Alternative valuations, differences between i d hi h d b l i )current reporting and highest and best use valuation)

21

Joint FASB / IASB Projects/ j• Comprehensive Income

– Improve the reporting of comprehensive income for all entities

I ith IFRS– Increase convergence with IFRS

– Net income and other comprehensive income would be combined into a continuous statement of financial performance – no longer would permit reporting on the statement of changes in stockholder’s equityreporting on the statement of changes in stockholder s equity

– Subtotals would be required for both

– Would not change the items that are reported in other comprehensive income or when an item is reclassified into net income

– Would not affect how earnings per share is calculated

– Expected to issue a final standard during the first quarter of 2011

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• Financial Instruments

– Develop a comprehensive model for accounting for financial instrumentsDevelop a comprehensive model for accounting for financial instruments focusing on:

• Recognition and measurement

• Impairment• Impairment

• Hedge accounting

– More limited use of equity method accounting, increase in the marking of items to fair value, regardless of how they are accounted for

– Increase convergence with IFRS

– Issued an Exposure Draft in May 2010 requesting comments by September 30, 2010 with a final standard expected by the second quarter of 2011

23

403(b) Aftermath

Timothy J. Hammer

Audit and Assurance ShareholderAudit and Assurance Shareholder

in charge of Employee Benefits Reporting Group

Agenda/Objectivesg / j

1 What you/we may have learned1. What you/we may have learned

2. Recurring plan compliance issues

3 Tips for 2010 plan year audits3. Tips for 2010 plan year audits

4. Other important matters

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What you/we may have learnedy / y

First Year audits are painful!!!First Year audits are painful!!!

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Cooperation from Service providers varied

** Improved as time progressed

** We experienced different answers for the same questions (from

the same TPA!)

** Generally, clients had more influence that the CPA firms

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New e‐filing procedures posed challenges due to timing

** For TIAA‐CREF plans – bottleneck of getting plans filed timely

posed challenges

** For plans that we audited and e‐filed form 5500 processed very

smoothly

Difference between “Loans to participants” vs. “Participant loans”

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Typical compliance issuesyp p

1) Late deposit of employee deferrals

2) Failure to properly apply plan’s definition of compensation2) Failure to properly apply plan s definition of compensation

3) Failure to properly follow plan’s eligibility provisions

4) Failure to properly apply plan’s vesting provisions

5) Incorrect allocation of employer contributions

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Tips for 2010 plan year auditsp p y

• Prepare a well thought out timeline

‐‐Meet with all service providers sooner rather than later

to discuss timing of information flowto discuss timing of information flow

‐‐ Assign responsibilities and due dates for all parties

‐‐ Consideration of financial statement audit of your

organization (June year end audits)

‐‐ Review your internal resources to meet deadlines

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Planning opportunities and other important matters

• For organizations that have two 403 (b) plans (TDA and profit sharing) consider merging them into one plansharing) consider merging them into one plan

• Timely remittances of employee deferral monies– DOL rule is “as soon as they can be reasonably segregated from the

employer’s general assets, but in no event later than the 15th business day of the month following the month in which the participant contributions are withheld”

• Do not use 15th business day as a safe harbor!

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• Review of fiduciary responsibilities within your plan environmentenvironment

• ERISA sets standards of conduct for those who manage an gemployee benefit plan and its assets

• There may be one or a number of officials with discretion over the plan (inside and outside your organization)

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• Recommended steps to consider:

1) Review your plan environment to determine who are fiduciaries (ordinarily – the trustee, investment advisors, all individuals exercising discretion in the administration of the plan, members of the plan’s d i i i i )administrative committee)

2) Some important responsibilities of Fiduciaries are:1) Acting solely in the interest of plan participants2) C i t th i d ti d tl2) Carrying out their duties prudently3) Following the plan document4) Diversifying plan investments; and5) Paying only reasonable plan expenses5) Paying only reasonable plan expenses

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• A duty to act prudently is one of a fiduciary’s central responsibilityresponsibility

• Prudence focuses on the process for making decisions

• Therefore, it is wise to document decisions and the basis for ,those decisions

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QUESTIONS?

Thank you for your attention!!

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Year‐End Considerations

Eric M. Wright

Technology Advisors ShareholderTechnology Advisors Shareholder

Security Review

• Review the users that still have access to your network. The login account for anyone who was terminated during the year

y

login account for anyone who was terminated during the year should be disabled or deleted, including subcontractor accounts that are no longer in use.

• Your operating system, firewalls and databases should have the latest security patches applied.

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• Examine your wireless networks encryption protocol and make sure it meets one of the industry standardsmake sure it meets one of the industry standards.

• Make sure your mobile users understand the risk of transmitting data over public networks.

• Validate that your anti‐virus definition files are up‐to‐date on both your workstations and servers, including your email serverserver.

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• Review all significant IT policies.

• Review your security policy as it relates to the use of smart• Review your security policy as it relates to the use of smart phones that are connected to the organization’s email servers.

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Miscellaneous Tasks

• Review your Disaster Recovery Plan– Make sure that your disaster recovery plan is updated to reflect changes y y p p g

that have occurred since the last update. (New servers, backup devices, firewalls, changes in personnel that were part of the recovery team, etc.)

• Physically clean servers and other critical devices.• Check the restorability of your backup device

– If you are not checking the restorability of your backups monthly, you should check your year‐end backup to ensure you can restore the critical datadata

• Review the disk space available on your critical servers. If you are approaching 60% of capacity and are not planning on upgrading that server you may have a problem brewingthat server, you may have a problem brewing.

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Review critical software applicationspp

• Review critical software applications to make sure that the database and development tools are still supported by the p pp ydeveloper– A sample of popular Microsoft software solutions whose extended

support will expire in the next 12 months include:pp p• Access 2002• Excel 2002• Exchange Server 2000g• Office XP Professional Edition• SQL Server 7• Word 2002Word 2002

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W2s

• The HIRE Act that was passed by Congress in June changed the format of the W2 – Box 12 will be used to report the HIREthe format of the W2 Box 12 will be used to report the HIRE Act exempt wages. You need to make sure that your software or software provider has captured your exempt wages and

h i h bcan report them in the proper box.

• You also need to make sure your software has been modified to account for the changes in the new W2 format regardlessto account for the changes in the new W2 format regardless of whether or not your organization qualifies for any HIRE Act payroll tax credits.

42

New Compliance Regulationsp g

• Red Flag– FTC‐enforced regulation that is designed to prevent identity theft.FTC enforced regulation that is designed to prevent identity theft.– Requires organization to have a formal identify theft program that

addresses 26 predefined scenarios for covered accounts.– Regulations go into effect January 1, 2011.g g y ,

• PCI version 2.0– PCI‐SSC has issued over 130 changes from version 1.2 that will take

effect on January 1, 2011effect on January 1, 2011– All but two of the changes provide additional guidance or clarifications

to the existing regulations.– Included as part of version 2.0 is guidance on the content of p g

information that should be part of your compliance package.

43

ACT 32

• Restructured the earned income tax collection system.

• Passed by the State Legislature in July 2008 and will• Passed by the State Legislature in July 2008 and will consolidate the local tax collection process and reduce the number of tax collectors from 560 to 69 (one per county and four in Allegheny County).

• Will require all employers to withhold local income taxes from all employeesall employees.

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Changes for Employersg p y

• More detailed employer quarterly or monthly and annual tax returnsreturns– Each employee’s name, address, and social security number.

– Each employee’s compensation during prior three months.

– Tax amount deducted from each employee.

– All municipalities and school districts that impose resident or non‐resident tax on the employee.

• Certificate of Residency – must be signed by all employees.

• Employers must use DCED Tax Register to determine tax rate applicable to every employeeapplicable to every employee.

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• Multi‐site employers may elect to pay tax in only one Pennsylvania county (the Wal‐Mart Amendment) but will bePennsylvania county (the Wal‐Mart Amendment), but will be required to file information electronically.

• Employers must register with the county tax collector

• Employees must be assigned a political subdivision code

• No tax on military pay for service outside of the state

• For municipalities with non‐resident tax rates, the employer is required to withhold the local taxes at the higher rate: employee’s resident rate or workplace rate.p y p

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Questions

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Year‐End Tax Compliance Checklist ofYear End Tax Compliance Checklist of Form 990 Disclosure Items

Debra Ann Ries, CPA MT

Tax Senior Managerg

AgendaAgenda

• Current Environment• Current Environment

• Business Expense Reimbursements

• Compensation ReportingCompensation Reporting

• Worker Classification

• Foreign Transaction Reporting

• Miscellaneous

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Current Environment

• IRS Employment Tax Initiative

• International Tax Issues

• Governance

• Charitable Spending Initiative

• Charitable Contributions

• Form 990 and new compliance projects• Form 990 and new compliance projects

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Business Expense Reimbursements p

Does your expense reimbursement policy meet the current accountable plan rules?the current accountable plan rules?

• There must be a business connection and the expense must be reasonablemust be reasonable.

• There must be reasonable accounting for the expenses.• All excess reimbursements must be repaid in a reasonable titime.

TIP ‐ Review executive expense reimbursement reports at prior and year end to identify any reimbursement that should be y y y

reported on Form W‐2.

51

Nontaxable Fringe Benefitsg

• Working Condition Fringe – excluded if deduction would be allowed as a business expense by employeebe allowed as a business expense by employee

• De minimis Fringe – excluded if value of benefit is too small to justify the administrative burden of accounting for it

• No Additional Cost Fringe – excluded if employer does not incur substantial expense in providing service tonot incur substantial expense in providing service to employee or forgo substantial profit

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Have you properly accounted for –y p p y

Travel, Meal and Entertainment Reimbursements

– Must be ordinary and necessary business expense

R i b t t b d d t bl l– Reimbursement must be made under an accountable plan

– Recordkeeping requirements

TIP – Review your policy to ensure that it meets your needs.

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Companion Travel

– Generally taxable compensation but may qualify as nontaxable fringe benefit if travel has a bona fide businessnontaxable fringe benefit if travel has a bona fide business purpose and is properly documented

TIP – Adopt a policy to address companion travel expense.

* l h l*Disclosed on Schedule J

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Employer Provided Auto

– Personal use portion taxable to employee

– Certain methods required to value personal use

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Employer Provided Cell Phones

– Effective for taxable years beginning after 12‐31‐09

– No longer subject to strict substantiation requirements

– New rules addressing valuing and reporting personal use

TIP – Stay tuned for further IRS guidance on taxation of personal use.

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Supper Money

Excluded as de minimis fringe benefit if ‐‐

Provided only on an occasional basis– Provided only on an occasional basis

– Provided because the employee is working overtime

– Provided to enable the employee to work overtimeProvided to enable the employee to work overtime

TIP – Does your Expense Reimbursement Policy address Supper Money ?

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Employer Provided Housing

Excluded if –• Lodging furnished for convenience of employerg g p y• Employee required to accept as condition of employment• Lodging is on business premises of employer

TIP – Adopt a written policy for employer provided housing.

*Disclosed on Schedule JDisclosed on Schedule J

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• Educational Assistance – Section 127• $5 250 per year excluded$5,250 per year excluded• Set to expire 12‐31‐2010

• Tuition Reduction – Section 117 Qualified Scholarship• Working Condition Fringe Benefit ‐ Section 132

TIP – Alert your employees of the pending expiration if you offer an educational assistance program and evaluate

taxation of benefittaxation of benefit.

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• Employer Gifts and Awards

• Employer paid club memberships*• Employer paid club memberships*

• Employer provided personal services*

• Life insuranceLife insurance

• Long term care insurance

• Moving expenses

• Severance payments

*Disclosed on Schedule J

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Worker Classification

• 20 common law factor tests

• Focus of IRS Employment Tax Initiative

• CCA 20100827816002632 – individual can be both an employee and independent contractor for one entity

TIP Review your service contracts with individualsTIP – Review your service contracts with individuals.

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Form 1099 Backup Withholding

• Announcement 2010‐41

• 1st Notice send W 9• 1st Notice – send W‐9

• 2nd Notice – payee must request SSN printout to avoid backup withholdingg

• TIP – Secure individuals TIN (Form W‐9) before issuing any tpayment.

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Increased penalties for failure to file Form 1099 b i i J 2011beginning January , 2011

1 30 d l t $30/f f $250 000 (75 000)• 1 – 30 days late ‐ $30/form, max of $250,000 (75,000)

• More than 30 days but before August 1 ‐ $60/form, max of $500,000 ($200,000)$ , ($ , )

• After August 1 ‐ $100/form, max of $1.5 million ($500,000)

TIP – Check A/P payments.

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Foreign Transaction Reporting Requirements –g p g q

FACTA – Requires foreign financial institutions (banks, private equity and hedge funds) to report information about their U.S. account holders

– Failure to comply results in withholding tax on U.S. income

– Increases statute of limitation on omission of income on undisclosed foreign financial assets

64


Foreign Bank Account Reporting (FBAR)

• Aggregate value of foreign accounts exceeds $10,000

• Due by June 30 of following year• Due by June 30 of following year

• Failure to file may trigger civil and criminal penalties –monetary and incarcerationy

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• Alternative Investments (i.e., Form 926, 8865)Alternative Investments (i.e., Form 926, 8865)

• Foreign Tax Treaties

• Totalization Agreements

• Required Withholding on Payments to Nonresident Aliens (i.e. Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons)Income of Foreign Persons)

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Miscellaneous

Uncertain Tax Positions ‐

• Required for taxpayers with uncertain tax positions and assets equal to or greater than $100 000 millionassets equal to or greater than $100,000 million

• Does not apply to exempt organizations for 2010 year

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Miscellaneous

IRS Governance Checklist released January 2010• Governing body and management

• Compensation

• Organizational control• Organizational control

• Conflict of interest

• Financial oversightFinancial oversight

• Document retention

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Miscellaneous

Guidestar Problems – some 990s contain errors:• Blank narrative descriptions• Yes/no answer discrepancies• Blank functional expense amountsp• Additional data sheet

– Schedule O narratives– Overflow descriptions– Overflow descriptions

TIP – Check your 990 on Guidestar.

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Miscellaneous

PA BCO Notices

• Currently if no fundraising expenses on Statement of Functional Expenses of Form 990Functional Expenses of Form 990

– Requests amendment of Form 990 or written explanation

• Next – if no management and administrative expense onNext if no management and administrative expense on Statement of Functional Expenses

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Miscellaneous

Draft 2010 Form 990 released

• Overflow schedules

• Schedule F – new section on investmentsSchedule F new section on investments

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Year‐End Tax Compliance Checklist of Form 990 Disclosure Itemsof Form 990 Disclosure Items

?Questions?

72

Health Care Reform UpdateHealth Care Reform UpdateHealth Care Reform UpdateHealth Care Reform Update

Tax ImplicationsTax Implications

Susan M. Kirsch, CPA, JD

T Sh h ldTax Shareholder

Today’s Agenday g• Governing Legislation

‒ Patient Protection and Affordable Care Act H R 3590Patient Protection and Affordable Care Act H.R. 3590

‒ Health Care and Reconciliation Act of 2010 H.R. 4872

B i f f t i t h d th i ff ti d t• Brief summary of certain tax changes and their effective dates

‒ Universal Health Coverage Mandate

Health Related Re en e Raisers‒ Health Related Revenue Raisers

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Summary of Major Tax Changesy j g2010 – New exemption standards for hospitals

2010 – 10% federal excise tax for using indoor tanning facility

2010 – Small business “premium” tax credit

2011 – Over‐the‐counter limitations and additional tax on HSA/MSA distributions

2011 – Simple cafeteria plans

2012 – Reporting of payments to corporations; W‐2 reporting of health insurance

2013 – Medicare tax increase for high income earners

2013 ‐ New 3.8% Medicare tax on investment income

2013 ‐ Flexible spending account contributions limitation

2013 – Itemized deduction threshold for health care expenses increases2013 – Itemized deduction threshold for health care expenses increases

2013 – Excise tax on certain medical devices

2014 – “Pay or play” provisions begin for certain taxpayers

2014 – Individuals refundable premium assistance credit created; penalty for no coverage

2018 – 40% excise tax on a portion of employer‐sponsored “Cadillac Plans”

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New Exemption Requirements for Hospitalsp q p

• Hospitals shall not be treated as exempt unless:

– Prepare community health needs assessment

f– Meet financial assistance policy requirements

– Limits charges for care for financial assistance patients to amounts billed to insured patientsto insured patients

– Billing and collection efforts must not be extraordinary before financial needs analysis is conductedneeds analysis is conducted

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New Exemption Requirements for Hospitalsp q p

• IRS review of tax exemption

• New Form 990 disclosures

Community health needs assessment– Community health needs assessment

– Audited financial statements

• Noncompliance

– Loss of exemption

– Annual tax of $50,000

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Small Employers Offering Health Coverage

• Small Business Tax Credit

p y g g

– Credit established to offset the cost of employer‐provided insurance

– Non‐profits with less than 25 FTEs and average wages of less than $50k lif f t dit f t 25% f th t f i l$50k may qualify for a tax credit of up to 25% of the cost of single coverage provided by employer

– Employers with 10 or fewer employees and average wages of less than p y p y g g$25k qualify for maximum credit

– Claimed on Form 990‐T

78

Changes Effective January 1, 2011g y ,• Restrictions On Use of HSA and FSA Funds for Over‐the‐Counter

Drugs

– Over‐the‐counter medicines or drugs are not eligible for reimbursement under a FSA, HRA or HSA without a doctor’s prescriptionprescription

– Does not include eye glasses, contact lenses, co‐pays, crutches, etc.

• HSA Excise Tax Increase From 10% to 20%

– Distributions for expenses that are not qualifying medical expensesDistributions for expenses that are not qualifying medical expenses will be included in income and subject to additional tax of 20%

79

Changes Effective January 1, 2011• SIMPLE Cafeteria Plans for Small Businesses

– The Act relaxes the cafeteria plan rules to encourage more small

g y ,

The Act relaxes the cafeteria plan rules to encourage more small employers to offer tax‐free benefits to employees including those related to health care coverage

– A small employer is defined as having an average of 100 or fewer employees on business days during either of the two preceding years

Nondiscrimination requirements of a classic cafeteria plan are deemed– Nondiscrimination requirements of a classic cafeteria plan are deemed satisfied

– Must meet certain contribution, eligibility and participation irequirements

80

Changes Effective January 1, 2012g y ,

• Information Reporting For Payments to Corporations

– Act requires businesses to file an information return (Form 1099) for– Act requires businesses to file an information return (Form 1099) for all payments aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax‐exempt corporation)corporation)

– Effective for payments made after December 31, 2011

– Prior to healthcare reform, payments to corporations were exempt from Form1099 reporting

81

Changes Effective January 1, 2012g y ,

• W‐2 Reporting for Value of Insurance Coverage

– Employers are required to report the “aggregate cost” of employer sponsored health care benefits, including medical, dental, vision and supplemental coverage, on employees’ W‐2supplemental coverage, on employees W 2

– Reporting requirement optional in 2011, mandatory in 2012

Salary reduction contributions to a HSA or FSA will not be reported– Salary reduction contributions to a HSA or FSA will not be reported

– Cost is determined in manner similar to COBRA continuation coverage premium calculationsp

82

Changes Effective January 1, 2013

• Additional Hospital Insurance Tax (HI/Medicare) on Wages

‒ Individuals making $200,000 a year or couples making $250,000 will be subject to a Medicare tax of 2.35% on earned income, up from the current 1.45%

‒ Only applies to the earner & self‐employed person – not to employers

‒ Not deductible as SE tax on individual’s Form 1040

‒ The additional .9% tax is based on combined wages of taxpayer and spouse on a joint return

Thresholds not indexed for inflation‒ Thresholds not indexed for inflation

83

Additional HI (Medicare) Tax Continued( )

• Employers are required to withhold additional .9% only if the employee receives more than $200,000 from them

• Example:

‒ Employer A pays Sean $180,000. Sean earns $50,000 from Employer B. Sean’s wife earns $125,000 from Employer C

Neither employers A B or C must withhold the tax since neither‒ Neither employers A, B or C must withhold the tax since neither individual earned in excess of $200,000 from one employer

‒ Sean and his wife will pay the additional .9% Medicare tax on their lpersonal return

84

Changes for Tax Years Beginning after January 1, 2013

• Medicare Contribution Tax on Unearned Income

– A new tax of 3.8% on unearned income, such as dividends/interest, royalties, annuities, rent, net gain from disposition of property

– Tax applied on the lesser of net investment income or the amount of modified AGI that exceeds the threshold amount ($200,000, $250,000 MFJ, $125,000 MFS)

– Does not apply to trusts exempt under IRC Sec. 501 or a charitable remainder trust exempt under IRC Sec. 664remainder trust exempt under IRC Sec. 664

85

Changes for Tax Years Beginning after January 1, 2013

• Health FSA limit on contributions

– Contributions to a health FSA offered as part of a cafeteria plan are capped at $2,500 each year

– Cap previously left to employer’s discretion ($4k to $5k)

– Indexed for Consumer Price Index (CPI) starting in 2014Indexed for Consumer Price Index (CPI) starting in 2014

– Will the inflation index keep pace with actual costs of health care?

86


• New 2.9% Excise Tax on Medical Devices

– Contacts, glasses, and other items generally purchased at retail

‐ Imposed on manufacturerImposed on manufacturer

• Itemized Deduction Threshold for Medical Expenses increases from 7 5% to 10% of AGI; exception through 2016 for those aged 65 or7.5% to 10% of AGI; exception through 2016 for those aged 65 or older

87


• Pay or play provisions enacted for businesses

– Large employers defined as having an average of at least 50 full‐time employees

– Assessable payment is calculated monthly as 1/12 of $2,000 (166.67) times the number of full time employees in excess of 30

A li bl l i h i ffi i ff d bl li i d l– Applicable to plans with insufficient, unaffordable or limited employee coverage

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• Individuals

– Penalty imposed for no health care coverage with certain exceptions

– Applicable dollar amounts are greater of 2.5% household income overApplicable dollar amounts are greater of 2.5% household income over filing threshold or:

2014 ‐ $95

2015 ‐ $325

2016 ‐ $695

• Refundable health insurance premium assistance credit created• Refundable health insurance premium assistance credit created

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Changes Effective for the Tax Years Beginning After December 31 2017December 31, 2017

• Cadillac Plan Excise Tax (High‐Value Plans)

– A 40% excise tax will be applied to the excess value of a health plan above statutory thresholds. For most health plans, the threshold in the law will be established at $10 200 for single coverage and $27 500 forlaw will be established at $10,200 for single coverage and $27,500 for family coverage adjusted annually for general inflation

– Excludes dental & vision plan

– Levied at insurer level

– Employers will be required to aggregate coverage subject to limit and p y q gg g g jissue information returns

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Final Messageg

• Bulk of provisions effective after 2013

• Many clarifications will be forthcoming

lk f l b h h ll• Talk to your SD professional team about recent changes that will affect you and your organization

• Refer to the SD website www.schneiderdowns.com for Health Care Reform Updates & Register for Automatic Health Care Reform “Insight” articlesg

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Thank YouThank You

To obtain a copy of today’s presentations, please visit

us at www schneiderdowns com/nonprofit1232010us at www.schneiderdowns.com/nonprofit1232010

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2010 nonprofit year end checkup - schneider downs · 2014-03-17 · 2010 nonprofit year ... –...

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