Find out what it could mean to you in 2013 and beyond.
The Supreme Court’s June 2012 decision to uphold the 2010 Patient Protection and Affordable Care Act may impact your individual and business taxes in the coming years.
We know there’s a chance the Republicans will repeal the Act…but since the Supreme Court ruled that it’s constitutional, we recommend planning for at least some of the changes it will bring. Let’s look at the key tax changes that may affect you.
Individual mandate:
This is the requirement that U.S. Citizens and legal residents have qualifying health coverage or be subject to a tax penalty after 2013.
Individuals who choose not to carry qualifying health coverage may eventually pay a tax penalty of the greater of:
• $695 per year, up to a maximum of 3X that amount per family ($2,085), or
• 2.5% of any household income over the threshold income required for income tax-return filing
The penalty will be phased in over three years:
• Flat fees:
$95 in 2014
$325 in 2015
$695 in 2016
• Percentage of taxable income:
1.0% in 2014
2.0% in 2015
2.5% in 2016 (after which, the penalty will be increased annually by a cost-of-living adjustment)
Exemptions to this penalty will be granted for financial hardship and other circumstances.
Premium assistance tax credits for purchasing health insurance:
The health care legislation provides tax credits to low and middle income individuals and families for the purchase of health insurance (for tax years ending after 2013) through an Exchange. The credit will be available on a sliding scale basis for individuals and families with incomes up to 400% of the 2009 federal poverty level ($43,320 for an individual and $88,200 for a family of four) — that are not eligible for Medicaid, employer-sponsored insurance or other acceptable coverage.
Here’s how the premium assistance tax credit Exchange is proposed to work.
• An eligible individual enrolls in an insurance plan offered through the Exchange, and then reports his/her income to the Exchange.
• Based on that reporting, the individual receives a premium assistance credit depending on income levels…and the IRS pays the credit amount directly to the insurance plan in which the individual is enrolled.
• The individual then pays for the difference between the premium assistance credit and the total insurance premium charged by the plan. If the individual is employed, those payments are made through payroll deduction.
Higher Medicare taxes on high-income taxpayers:
The Medicare payroll tax is the primary source of funding for Medicare’s hospital insurance fund. As part of the Affordable Care Act, high-income taxpayers will be subject to a tax increase on wages, plus a new levy on investments.
Under current law, wages are subject to a 2.9% Medicare payroll tax, divided equally between workers (paying 1.45%) and their employers (paying 1.45%). But under the Affordable Care Act, which takes effect in 2013…
• Most taxpayers will continue to pay the 1.45% tax, but single people earning more than $200,000 and married couples earning more than $250,000 will be taxed at an additional 0.9% in Medicare tax on the excess income over those base amounts…subject to certain rules.
• In addition, beginning in 2013, a new 3.8% tax will be imposed on net investment income of single taxpayers with an adjusted gross income (AGI) above $200,000 and joint filers over $250,000. This is the first time the tax will be applied to investment income.
If your individual or family income exceeds the combined income and investment earning thresholds mentioned above, you’ll want to plan for this major tax change.
Other key tax changes:
Here are a few additional tax changes that may affect you starting in 2013…
• The medical expenses deduction floor (minimum) will be raised from 7.5% of AGI to 10%. This means qualified expenses must exceed the taxpayer’s AGI by 10% before deductions are allowed.
• Increased penalties for non-qualified contributions from a health savings account (HSA) or Archer MSA account. The new penalty will be 20% — up from 10% for HSAs and 15% for Archer MSAs.
• Health flexible spending arrangements (FSAs) will be limited to $2,500 per year. Under current law, there is no limit on contributions to an employer-based FSA.
We are always happy to review your situation and provide guidance this year before the 2013 rules kick in. Call us to make an appointment: 207-774-0882