April, 2008
Medical Benefits Under the Microscope
April, 2008
Medical Benefits Under the Microscope
Year after year of cost increases have made "affordable" health-care coverage increasing difficult to come by. To control their costs, employers are cutting back on benefits and shifting more expenses to employees. Any many small businesses don't offer health insurance, often citing high premiums as the reason. This can put them at a competitive disadvantage when it comes to recruiting top quality workers.
Employers attempting to lower their benefit costs or find lower priced coverage might try one or more of these strategies:
Shop around. This may be especially effective for vision and dental benefits, where providers that are trying to gain market share may be willing to negotiate on price.
Review prescription benefits. Instead of securing prescription drug coverage as part of a package from a single provider, using a pharmacy management company may result in cost savings from volume discounts and greater use of cheaper generic drugs. Another potential cost saver: Institute a mail-order system for recurring prescriptions.
Verify spousal/dependent coverage. The idea here is to make sure that those who are covered under the plan are indeed eligible for coverage. Another possibility: Charge a higher premium for spousal coverage when an employee's spouse is eligible for coverage under another plan.
Encourage preventive care. Covering 100% of preventive care services could result in a healthier work force and, ultimately, less utilization of costlier medical services.
Consider a consumer-direct plan. Coupling a high-deductible health plan with a health savings account or health reimbursement arrangement can result in cost savings. The high deductible helps drive down the insurance premium cost, while increased awareness of how their health-care dollars are being spent may motivate employees to be more judicious in their use of services.
Join a purchasing cooperative. Groups that allow employers to band together to get reduced rates are becoming more common. Some are geographically based, while others are made available nationwide through trade organizations.
Capture available incentives. A few states offer subsidies and credits to small businesses that offer health insurance.
The U.S. Supreme Court has held that investment advisory fees paid by a trust generally are not fully tax deductible. Instead, these fees are deductible only to the extent that they, in combination with certain other miscellaneous expenses, exceed 2% of a trust's adjusted gross income (AGI). The decision resolves a conflict among federal appeals courts.
Trusts that incur substantial investment advisory fees will be hurt the most by the decision. For example, assume a trust has AGI of $600,000 and pays fees of $20,000. There are no additional miscellaneous expenses. The trust's deduction for the fees is limited to $8,000 - the amount in excess of $12,000 (2% of $600,000). In this example, having to apply the 2% floor to the deduction costs the trust an additional $4,200 of federal income tax, assuming a 35% tax bracket.
If you have questions about how the new decision may affect a trust you administer or are the beneficiary of, please let us know.
That's what inflation does to prices. You probably have been thinking a lot about inflation, especially when you buy something and realize that it's more expensive than it was the last time. Yet, the inflation figures the government releases seem low.
The "official" inflation figures (measured by the Consumer Price Index) have been relatively low for quite a while. But that trend may be changing. Last year's inflation rate of 4.1% was the highest since 1990. And the inflation rate you experienced might be even higher.
Your Rate May Differ. Certain costs have been escalating faster than the "official" inflation rate for a number of years. College costs and medical expenses are two of the most notable. So if you have a child at a four-year private college, pay for your own health insurance premiums, or regularly take several prescription drugs, the rate of inflation you're feeling could be noticeably higher than the official rate.
Gasoline prices are also skyrocketing. If you drive an average car an average number of miles, then the figures the government uses may be close to your own. But, if you have a long commute or frequently visit a sick parent who lives far away, the amount you're spending on gas may be well above average. And that can drive up your personal inflation rate.
When the inflation rate goes up, those living on a fixed income feel the pinch the most. Retirees are especially vulnerable. As a group, they have higher medical costs. And, although Social Security benefits are adjusted for inflation every year, the adjustment is based on the CPI inflation rate, which may not match the inflation rate may retirees are experiencing.
What You Can Do About It. Inflation can put a crimp in your personal finances. So make sure you factor price increases into your financial planning - especially if your personal inflation rate runs higher than average. Knowing in advance that you're going to need more money for specific expenses in the future will give you a chance to adjust your spending and saving habits.
Asking if someone likes to negotiate is like asking if someone likes to speak in public. Most of the time the answer is "yes" or "no" . . . and rarely "sort of". If you aren't fond of negotiating, here are some tips that may make it easier.
Set the Right Tone. Break the ice before you start. Allow some time for small talk or refreshments, especially if you're meeting for the first time. Setting a civilized tone for your negotiations can help both sides come to the table in a reasonable mood.
Get in the Zone. Review the negotiating points before the meeting. Decide where you're willing to bend - and where you're not. Think about what the "other side" hopes to gain. What are your deal breakers? What might theirs be? And don't hesitate to request a break or postponement if new information is presented during the meeting: You'll want time to consider if and how your position is affected.
Throw in a Bone. Realize ahead of time that winning everything you want may not be possible. Allowing everyone to walk away with something can be a win-win situation. If the meeting turns nasty, negotiations may fail. Or, if a deal is reached, it may fall through later. So keep your emotions in check. Unprofessional behavior can create bad feelings - and that could take further discussions off the table for good.
It sounds perfect. work from home, save time and money, be your own boss, and set your own schedule. But many of those who have done it say working from home can be stressful and inefficient. Here are some tips that may help.
The changes in the federal tax law that were enacted in late December 2007 were a long time in the making, but they provide individual taxpayers with welcome relief in certain key areas.
Home Mortgages. Reacting to the subprime lending crisis. Congress has provided tax relief to homeowners facing foreclosure. Usually, if a mortgage lender forecloses on a taxpayer's home and sells the home for less than the amount the taxpayer owes on the mortgage, any amount that no longer has to be paid back ("forgiven" debt) represents taxable income to the borrower. However, for 2007-2009, forgiven debt on qualified principal residences will not be taxable. (There's a $2 million cap.) This provision also applies to amounts forgiven when qualifying loans are restructured to reduce the principal amount.
Another provision extends the new deduction for home mortgage insurance premiums through 2010. The deduction had been set to expire after 2007. Various limitations apply.
Sale of Home by Surviving Spouse. Starting in 2008, a surviving spouse who sells a principal residence no later than two years after his or her spouse's death may qualify to exclude as much as $500,000 of capital gain on the sale from taxable income. Before this change, if a home was sold in a year after the year of death (when a joint return could no longer be filed), the maximum gain exclusion was $250,000. To qualify, the requirements for the exclusion must have been met immediately before the spouse's death, and the surviving spouse must not have remarried as of the sale date.
Alternative Minimum Tax. In another significant change, the alternative minimum tax (AMT) exemptions for the 2007 tax year have been increased from their 2006 levels. The 2007 exemption increases are only temporary, however. Absent another law change, the exemptions will drop sharply for 2008. Also in place only for the 2007 tax year is a provision allowing certain "nonrefundable" personal tax credits - for example, the Hope and Lifetime Learning education credits - to be used to offset the AMT.
Sophia is selling her temporary staffing business and has an agreement of sale. If all goes well, she'll receive a check for seven figures. She's never handled that large a sum of money before and wants to make sure she handles it properly.
Receiving a large lump sum can be thrilling - and overwhelming. Sophia is wise to be cautious. A little planning will go a long way toward helping her make the most of her money.
Since most large sums carry a "price tag" in terms of taxes, Sophia will want to start by finding out what the tax consequences will be so she can make plans to minimize the impact. Putting together a sound, long-term strategy for investing and spending should be her next priority.
Until that plan is in place, Sophia may want to park the money in short-term investments, such as certificates of deposit or a money market fund. That will give her time to evaluate her goals and set priorities without having to worry about the investment markets.
With a substantial increase in her personal wealth, Sophia will also want to review her estate plan. There may be opportunities for controlling estate taxes that weren't previously available. She'll also want to be sure she makes appropriate provisions for her family.
As financial professionals, we are trained to look at the big picture. Please call on us if you need personal financial and tax planning assistance.
The IRS stepped up its audits of individual taxpayers earning $100,000 or more in fiscal year 2007, auditing 293,188 returns - a 13.7% increase over 2006. Audits of S corporations, partnerships, and mid-size corporations also increased.
Employers that provide retiree health benefits may coordinate those benefits with Medicare without violating the Age Discrimination in Employment Act (ADEA), says the U.S. Equal Employment Opportunity Commission in a recent ruling. Previously, a federal court had held that the ADEA requires that benefits provided to Medicare-eligible retirees be the same (or cost the employer the same) as benefits provided to younger retirees.
The IRS has released a new Form 990 for use by tax-exempt organizations. Use of the new form will be phased in based on organization size. Larger organizations must begin using the form for their 2008 tax year (returns filed in 2009).
Less than 20% of unwanted cell phones are recycled annually. The U.S. Environmental Protection Agency and partners in the private sector have launched a public education campaign aimed at improving that statistic.
Question: My company owns life insurance policies on several key employees. Do we need to file IRS Form 8925 (Report of Employer-Owned Life Insurance Contracts)?
Answer: The new form is used to report the number of employees covered by employer-owned life insurance contracts issued after August 17, 2006, the total amount of the insurance in force on those employees at the end of the tax year, and whether valid consents have been received from each of the employees. Unless your policies were issued before the effective date, you probably have to file the form.
Question: Is it acceptable for a business to treat any worker who earns less than $600 per year as an independent contractor?
Answer: While that certainly would be convenient, determining whether a worker is an employee or independent contractor requires more analysis. In general, the more control a business has over a worker, the more likely it is that the worker is an employee - regardless of pay or number of hours worked.