With the reincarnation and passage of the President’s Health Care Bill, the tax increases to pay for the health care legislation have now been enacted. While the health care legislation will be phased in over the next 10 years, taxes to support he legislation will be phased in over the next 8 years. Following is a time line for implementation of some of the major health care changes as well as the new taxes to pay for these changes.
2010
Tanning salons will be subject to an excise tax of 10% of the cost of the services effective July 1, 2010.
2011
Commencing January 1, 2011 you can no longer use distributions from flexible spending accounts (FSA’s), health savings accounts (HSA’s), or Archer medical savings accounts to pay for non prescription (over the counter) medications. If you use a distribution from a health savings accounts (HSA’s) or an Archer medical savings account for something other than a qualified medical expense such amount must be included in your gross income and will now be subject to a 20% penalty tax.
2011 Form W-2’s will now include a box where your employer must disclose the cost of providing group health insurance to you.
2012
Election year. No new implementations and no new taxes.
2013
Medicare Tax On Wages
Currently, Medicare tax is imposed on all earnings with the employer paying 1.45% and the employee 1.45%. As of January 1 a single employee will pay 1.45% on the first $200,000 of wages and 2.35% on wages in excess of $200,000. Married taxpayers filing jointly will pay 1.45% on the first $250,000 of wages and 2.35% on wages in excess of $250,000. The 0.9% increase does not apply to the employer. If the employer fails to withhold the additional 0.9% the employee will be held responsible for paying the additional tax when they file Form 1040.
Medicare Tax on Investment Income
Single taxpayers with adjusted gross income in excess of $200,000 and married taxpayers filing jointly with adjusted gross income in excess of $250,000 will be subject to a 3.8% Medicare tax on investment income. As an example, a married couple filing jointly has wages of $260,000 and investment income of $90,000 or $350,000 of adjusted gross income. The 3.8% Medicare tax is imposed on the lesser of their investment income of $90,000 or the $100,000 in excess of the $250,000 threshold. So in this example the additional Medicare tax will be 3.8% of $90,000 or $3,420.
Investment income includes interest, dividends, annuities, capital gains, rents and royalties, and gain from a passive investment such as from a private or publicly traded partnership.
Estates and trusts will also be required to pay the 3.8% Medicare tax on undistributed investment income.
Medical Itemized Deductions
Currently, only medical expenses in excess of 7.5% of adjusted gross income are deductible. In 2013 the threshold is increased to 10%.
Maximum Contributions to Flexible Spending Accounts (FSA)
Under current law there is no limit on the amount that can be contributed to an FSA.
In 2013 an FSA will not be a qualified benefit under a cafeteria plan unless the plan provides for a maximum $2,500 salary reduction contribution.
2014
Mandatory Health Insurance
Failure to have health insurance will result in a penalty of $95 in 2014, $325 in 2015, and $695 in 2017 and adjusted thereafter for inflation for each family member (to a maximum of three) who does not have health insurance.
If the individual fails to declare and pay this penalty when they file their tax return they are subject to a fine of $250,000 and/or 10 years in jail.
2018
If your employer provides you with health care and the premium exceeds:
Single $10,200
Married $27,500
The individual will be required to pay a 40% excise tax on the difference between the actual cost and the above amount. For e
xample, if the premium for the single individual was $18,900 the taxpayer would owe $3,480 in excise tax ($18,900 less $10,200=$8,700 x 40%).
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