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Smart Benefits: 5 New Healthcare Reform Taxes

Monday, July 09, 2012


With Obamacare upheld, it's time to examine where exactly the funding will come from, and that means taxes.

The old adage that “nothing in life is free” even applies to healthcare reform. Beginning in January, 2013, millions of Americans will start to pay higher taxes to help fund portions of healthcare reform (a.k.a. Obamacare) – offsetting the promise of more affordable care for many.

Taxpayers can expect to see Increases in the following areas:

Limits on Flexible Spending Accounts

Nearly 25 million Americans have Flexible Spending Accounts (FSAs) and many elect to set aside more than $2,500 pre-tax to help pay for qualified medical expenses. But starting January 1, they’ll be limited to that amount.

For an individual who previously set aside $5,000 a year, saving 30% on out-of-pocket qualified medical expenses with their FSA, the additional tax impact will be about $800.

The increase will have a big effect on families juggling medical and prescription copays, dental expenses (e.g. braces) and even some special education tuition expenses (limits apply).

Medical Expense Deduction Threshold Increases from 7.5% to 10%

Under the current IRS allowance, Americans are able to deduct medical expenses at tax time if they exceed 7.5% of adjusted gross income. Beginning in January, 2013, that threshold will increase to 10%, meaning individuals will need to incur 2.5% additional expenses of adjusted gross income to qualify.

For example, someone making $100,000 a year now has to spend at least $7,500 on healthcare to take the tax deduction. Next year, that same individual will need to incur an additional $2,500. For the sickest Americans who already pay excessive out–of-pocket medical bills, this tax will have a big impact.

Medicare .9% Payroll Tax

Self-employed business owners and employees who earn more than $200,000 ($250,000 for married couples filing jointly) will pay 0.9% in Medicare tax through payroll on any income above these amounts starting in 2013. So, for example, small businesses or individuals who make $300,000 next year will pay another $900 in taxes.

Investment Income 3.8% Surtax

A 3.8% Medicare tax will be applied for any unearned income – including interest, dividends, capital gains, rents and royalties – that exceed $200,000 for individuals and small businesses (or $250,000 for married couples filing jointly). That means someone with $100,000 in investment income over the threshold amount will pay an added $3,800 in taxes.

House Sale Tax

After January 2013, those individuals making over $200,000 (or $250,000 for married couples filing jointly) who sell their home will pay a 3.8% tax after the first $250,000 on profits from a personal residence – or after the first 500,000 in the case of a married couple.

These tax increases will help improve access for the millions of Americans who don’t have insurance. But they won’t ease rising insurance expenses for those already footing part of the bill – and may be just the beginning of even higher costs.

The state healthcare Exchanges, yet to be operational, will add additional costs due to the added layer of bureaucracy. And there’s no promise of federal tax money to the states to offset the cost of supporting all the people who will need subsidies or assistance. To raise revenue, will the Exchanges assess “taxes” on the health insurers, which, in turn, will lead to higher premiums for employers and employees to absorb? And don’t forget: those who choose not to buy insurance will pay the individual mandate tax as well.

Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.

For more health and business coverage, watch GoLocalTV, live every day at 4pm, and on demand 24/7, here.


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Good. I'm glad the fat cats are having to pay a little back. These "taxes" won't effect the 99% of us.

Comment #1 by Donnn Roach on 2012 07 09

Donnn - you and the rest of the "99%" people just love class warfare and obviously don't have a remote clue about "fairness". Sick people who aren't rich get hurt by this....average middle-class people who have FSA's get hurt by this.....and average non-rich self-employed business owners get hurt by this. And that's just the beginning.

Keep pushing your "tax the rich" agendas, and watch more money and jobs continue to go (and stay) overseas where it's cheaper (and where class-warfare by a bunch of jealous lazy people who want something for nothing isn't tolerated).

Comment #2 by Russ Hryzan on 2012 07 09

I hope you go overseas with them, you whiny, fascist loser. Let's see how long your flabby, pasty, white 50+ year old body can handle 90 hours per week of sweat labor.

You obviously don't have a clue about what tax rates were 20 years ago, when the economy didn't suck.

Take you're Ayn Rand and let Atlas Shrug it right up your rear end.

Because I will fight every single fascist loser who wants to turn my United States of America into a Chinese Sweatshop Banana Republic with no minimum wage.

Comment #3 by Donnn Roach on 2012 07 09

Donnn - unlike you, I'm not a troll who has to hide behind a fake name in order to post uneducated, ignorant and baseless comments that are substantiated by no facts and which are only posted to antagonize instead of to promote productive discussion.

Comment #4 by Russ Hryzan on 2012 07 09

What promoted productive discussion by accusing me of being a proponent "class warfare" and one of a bunch of "jealous lazy people?"

I'm more than happy to fight fire with fire buddy.

And if there's to be a class war, I'll be happy to be on the side blessed with attrition.

So keep calling it class warfare. Maybe if you do it long enough, you'll get to find out what that's like.

Comment #5 by Donnn Roach on 2012 07 09

Your need to hide behind a false name (that also happens to be the name of a conservative oped writer for this site but has a few extra letters added to the name) shows that you're just a troll that's undeserving of any serious respect or attention. Grow up.

Comment #6 by Russ Hryzan on 2012 07 09

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