The PPACA eliminates the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments, effective 2013.

The Retiree Drug Subsidy was established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) for employers that sponsor group health plans providing prescription drug benefits to retirees. Under the MMA, certain employers were qualified to receive a subsidy equal to 28 percent of covered prescription drug costs for their retirees. Employers were entitled to an income tax deduction upon receipt of the subsidy and were permitted to take into account this deduction when accounting for their retiree prescription drug expenses.

The PPACA retains the Retiree Drug Subsidy, but eliminates employers' ability to deduct the amount of the subsidy. This change increases an employer's income tax liability.

The amount by which an employer's tax liability will increase depends on the total amount of the subsidy and the employer's applicable corporate tax rate, which currently ranges from 15 percent for income below $50,000 to 35 percent for income of more than $10 million.

For more details, click here to read a publication by Washington National Tax Services.

Question submitted by Heather