Smart Benefits: 5 New Healthcare Reform Taxes
Monday, July 09, 2012
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.
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.
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