@101 CHAP ZZ 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴커 � MEDICAL BENEFIT PLANS � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴켸 Medical insurance and medical reimbursement plans) are among the most common (and expensive) fringe benefits being of- fered by employers in these times of skyrocketing medical costs. Since individual taxpayers who itemize deductions can now only deduct their personal medical expenses and med- ical insurance costs to the extent such costs exceed 7.5% of adjusted gross income, this fringe benefit is more impor- tant than ever for tax purposes, since a non-discriminatory employer-provided health care plan is deductible to the em- ployer but not taxable to the employee. If you are in business for yourself, the only way to deduct the costs of medical coverage for yourself (including reim- bursement of medical expenses) in full is to incorporate (as a C corporation--S corporations may deduct the cost of such insurance on 2% shareholders, but the 2% shareholders can only deduct 25% of the cost of such coverage, plus any amount they may be able to get as an itemized deduction. Unincorporated business owners do not get to deduct the cost of their own medical coverage, in general. However, for tax periods before June 30, 1992, self-employed indivi- duals (sole proprietors or partners in a partnership) may deduct 25% of their medical insurance costs in computing adjusted gross income if they maintain a non-discriminatory health care plan for themselves and their employees. (Congress, in 1991, extended this deduction through mid- 1992, and will probably retroactively extend it again in 1993; plus, other recent law changes have widened this de- duction to cover the more-than-2% shareholders of S corpor- ations as well.) One way to get around this problem of non-deductible medi- cal insurance in an unincorporated business is where you have hired your spouse as an employee of the business. In that case, you may cover your spouse under a company medi- cal insurance plan, deduct such expense, and still be co- vered yourself, as a family member under your spouse's coverage. While this may seem a bit contrived, the IRS has blessed it in Revenue Ruling 71-588, 1971-2 CB 91. A medical reimbursement plan can be a particularly attrac- tive tax-saving device for a small corporation (C corpora- tion), if you have only a few or no employees. For exam- ple, you can use the medical reimbursement plan to cover medical expenses not covered by medical insurance, such as annual deductibles or co-payments and other items such as plastic surgery, hair transplants, orthodontics, dental care and eyeglasses. With a properly drawn reimbursement plan, all of these expenses can be deducted from the cor- poration's income when paid to you, and not be taxable income to you. 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� � URGENT WARNING TO EMPLOYERS! � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� Note that group health care plans must allow an employee (or other beneficiaries, such as spouse or children) to elect continued coverage (typically for up to 18 months) under the plan after the employee terminates employment, dies, or otherwise would lose coverage. Failure of an em- ployer to provide this feature will cause payments under the plan to become non-deductible and benefits or coverage provided to the highly-compensated employees to become tax- able. In addition, the Technical and Miscellaneous Revenue Act of 1988 added SEVERE PENALTIES, in the form of an ex- cise tax of $100 per day per beneficiary, if the employer's failure to provide for such extended coverage causes an employee or other beneficiary of the plan to lose coverage for a period of time. Most insurance companies should by now have re-written their policies to prevent such an oc- currence, thus the real risk is if you have a self-insured (i.e., uninsured) medical reimbursement plan for employees that fails to provide elective continuation coverage as the law requires. @CODE: CA 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� 쿎ALIFORNIA HEALTH CARE TAX CREDIT FOR EMPLOYERS� 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� The state of California will soon allow a health coverage tax credit against the income or franchise tax liability of small employers ("eligible employers") who provide health care coverage for certain of their employees ("eligible individuals") and the dependents of such employees. Effective for tax years that begin on or after February 1, 1993, for amounts paid or incurred on or after January 1, 1994, this tax credit will be allowed, and it will general- ly be the greater of $25 per month per covered individual or 25% of the total amount paid or incurred per month for health coverage. Employers who also provide prenatal and "well-baby" care or mental health benefits in addition to basic health care coverage are granted an additional $5 per month tax credit for each covered employee, for each of two such supplemental benefits. (Note that employers who claim the credit cannot also claim a tax DEDUCTION for such amounts, for California tax pur- poses. And the health care credit cannot be used to offset the California alternative minimum tax or the $800 annual minimum corporate franchise tax, but unused credits may be carried over to subsequent years.) To qualify for the credit, an employer must pay or incur at least 75% of the monthly health care premiums for elig- ible individuals and at least 75% of dependents' coverage for each of the foregoing credits. (However, an employer does not necessarily have to pay for dependent coverage in order to qualify for the credit on coverage of the eligible employee.) Newly hired eligible individuals must be al- lowed to participate in the health coverage plan within 60 days of their employment date, and to elect to join the plan at least once a year thereafter. "Eligible employers" are those who provide the minimum re- quired contribution for health insurance coverage and who employ on the average during the tax year NO MORE THAN 25 EMPLOYEES. An "eligible individual" is an employee of such an employer who performs at least 35 hours per week of services (or is covered by the employer's plan, even if working less than 35 hours a week), and who certifies to the employer on a special form that he or she is a resident of California. A owner-operator or a managing partner of the firm can also be an "eligible individual" if performing at least 35 hours a week of service for the company. There are other requirements, such as definitions of "basic health care services" that must be provided under a health care plan in order for it to qualify. An insurer must also provide a written certification to the employer that the health coverage in question qualifies for the California health care tax credit. This tax credit, once it becomes available, will be a sig- nificant boon to small employers who provide medical cover- age for their employees, generally $300 or more a year per covered employee, right off the employer's California income or franchise tax liability. Don't overlook this state subsidy to your business, if your small firm qualifies, as most will -- particularly with employee medical coverage having become as expensive as it is. @CODE:OF @CODE: HI 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� � HAWAII PREPAID HEALTH CARE (PHC) LAW � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� Hawaii is one of the few states to REQUIRE that employers provide prepaid health care benefits for their employees. Employees must be provided medical and hospital care in one of three ways: . Medical insurance (or coverage under a health care plan such as Kaiser); . A self-insured plan of the employer that has been approved by the state; or . Under a collective bargaining plan that provides at least the minimum level of required benefits. Note that for purposes of the Hawaii PHC law, an employer does not have to cover the following persons: . Workers employed for less than 20 hours a week; . Agricultural seasonal workers; . Insurance and real estate salespersons who are paid solely in the form of commissions; . Individuals working for a son, daughter or spouse; . Children under age 21 working for their father or mother. The employer may pay the full cost of Prepaid Health Care coverage but may instead choose to share part of the cost with employees. The amount that can be withheld from an employee's wages is limited to one-half the premium cost, but not to exceed 1.5% of the employee's wages. @CODE:OF @CODE: LS In @STATE, they shoot the wounded, due to budget constraints. @CODE:OF