The July 2012 Supreme Court ruling upholding what's collectivelyreferred to as the "Affordable Care Act" (ACA) or "Health CareAct" has resulted in a number of changes to the US tax code. As such thereare a number of tax implications for individuals and businesses. With that inmind, let's take a closer look at what it might mean for you.
Individuals
Individual Mandate
Starting in 2014, US citizens and legal residents not qualified for Medicare orMedicaid must obtain minimum essential health care coverage for themselves andtheir dependents or pay a tax penalty that varies based on income level. In2014, the basic penalty for an individual (no dependents) is $95, withsubstantial increases in subsequent years--$325 in 2015 and $695 in 2016,indexed for inflation thereafter.
Refundable Tax Credit
Effective in 2014, certain taxpayers will be able to use a refundable taxcredit to offset the cost of health insurance premiums so that their insurancepremium payments do not exceed a specific percentage of their income. Qualifiedindividuals are those with incomes between 133 percent and 400 percent of thefederal poverty level. A sliding scale based on family size will be used todetermine the amount of the credit. In addition, married taxpayers must filejoint returns to qualify.
FSA Contributions
FSA (Flexible Spending Arrangements) contributions are limited to $2,500 peryear starting in 2013 and indexed for inflation after that.
New Rules for HSAs and Archer MSAs
Tax on non-qualified distributions from HSAs and Archer MSAs that are used tocover the cost of over the counter medicine without a script will increase to20 percent starting in 2011. Medical devices, eyeglasses, contact lenses,copays, and deductibles are not affected, nor is Insulin even if it isnon-prescription.
Medicare Part D
Medicare Part D, the tax deduction for employer provided retirementprescription drug coverage, will be eliminated in 2013.
Increase in AGI Limit for Deductible Medical Expenses
The deduction is currently 7.5 percent of AGI, but next year, in 2013, thatincreases to 10 percent of AGI. The 7.5 percent threshold continues through2016 for taxpayers aged 65 and older, including those turning 65 by December31, 2016.
Health Coverage of Older Children
The cost of employer provided health care coverage for children (through age26) on tax returns is excluded from gross income.
Medicare Tax Increases for High Income Earners
Starting in 2013, there will be an additional 0.9 percent Medicare tax on wagesabove $200,000 for individuals ($250,000 married filing jointly).
Also starting in 2013, there is a new Medicare tax of 3.8percent on investment (unearned) income for single taxpayers with modifiedadjusted gross income (MAGI) over $200,000 ($250,00 joint filers). Investmentincome includes dividends, interest, rents, royalties, gains from thedisposition of property, and certain passive activity income. Estates, trustsand self-employed individuals are all liable for the new tax.
Exemptions are available for business owners and income fromcertain retirement accounts, such as pensions, IRAs, 401(a), 403(b), and 457(b)plans, is exempt.
Businesses
Small Business Health Care Tax Credit
Small businesses and tax-exempt organization that employ 25 or fewer workerswith average incomes of $50,000 or less, and that pay at least half of thepremiums for employee health insurance coverage are eligible for the SmallBusiness Health Care Tax Credit. For tax years 2010 through 2013, the maximumcredit is 35 percent for small business employers and 25 percent for smalltax-exempt employers such as charities. An enhanced version of the credit willbe effective beginning Jan. 1, 2014. In general, on Jan. 1, 2014, the rate willincrease to 50 percent and 35 percent, respectively.
Additional Tax on Businesses Not Offering Minimum essentialCoverage
Effective in 2014 an additional tax will be levied on businesses with 50 ormore full-time equivalent (FTE) employees that do not offer minimum essentialcoverage. Employers with fewer than 50 FTE employees are exempt from theadditional tax.
Excise Tax on High Cost Employer-Sponsored Insurance
Effective in 2018, a 40 percent excise tax indexed for inflation will beimposed on employers with insurance plans where the annual premium exceeds$10,200 (individual) or $27,500 (family). For retirees age 55 and older, thepremium levels are higher, $11,850 for individuals and $30,950 for families.
Excise Tax on Medical Devices
Effective January 1, 2014, a 2.3 percent tax will be levied on manufacturersand importers on the sale of certain medical devices.
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 performed by a licensedmedical professional on his or her premises. There's also an exception forcertain physical fitness facilities that offer tanning as an incidental serviceto members without a separately identifiable fee.
For more information on the "Affordable Healthcare Act" click on this link.
If you need assistance navigating the complexities of the newhealth care act, don't hesitate to call us at
445-8633. We're here to help.
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