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| Tax Implications of the Health Care Reform Legislation
The Patient Protection and Affordable Care Act, signed by President Obama on March 23, 2010, will make health insurance more affordable by providing tax cuts to middle income tax payers and small businesses. Under the law, 95 percent of Americans will be insured, albeit it will take four years for all the primary reforms to gradually be phased in.
Essential facts for individual taxpayers
- All individuals not eligible for Medicare or Medicaid or other government sponsored insurance or not receiving employer based insurance, or any grandfathered group health plans will be required to maintain "minimum essential coverage" by 2014: Individuals who fail to maintain minimum essential coverage will be liable for a penalty, beginning in 2014 with $95 or one percent of household income, whichever is greater, and increasing to as much as $695 or 2.5 percent of income. There will be exceptions for individuals whose income fall below the threshold for filing a tax return, such people will not have to pay the penalty.
- Eligible taxpayers will receive a refundable tax credit, beginning in 2014, to pay for the cost of premiums purchased through the state health insurance exchanges: Exchanges are the mechanisms through which individuals and small businesses can compare plans and purchase insurance coverage that fits their needs. The credit is designed to guarantee that taxpayers would not spend more than a specific percentage of their income on health insurance premiums. Eligibility for the tax credit is based on the taxpayer's income.
- Beginning in 2013, the maximum amount you can put away pre-tax in a FSA (Flexible spending account) is $2500.
- Also beginning in 2013, taxpayers who itemize on Schedule A their unreimbursed medical expenses will be able to write off ten percent of their AGI, as opposed to the current 7.5 percent. Taxpayers age 65 and over won't face this threshold until 2017.
- New excise tax on medical devices: beginning in 2013, a 2.3 percent excise tax will be imposed on the sale of certain medical devices, except for eyeglasses, contacts, and hearing aids.
- Medicare tax on investment income: Starting in 2013, higher income taxpayers will have to pay a tax equal to 3.8 percent of the individual's net investment income (interest, dividends, capital gains, etc.) if the AGI exceeds $200,000 for single taxpayers, or $250.000 for married filing joint taxpayers.This tax applies only to the employee portion of the Medicare tax from the paycheck. In addition, the employee's FICA (hospital insurance for Medicare) portion, currently 1.45 percent of covered wages, will be increased by 0.9 percent on wages that exceed the same thresholds as the investment tax.
Essential facts for small businesses
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