If you are like me, you remember exactly where you were the moment you found out that Obamacare had been upheld by the Supreme Court. No matter your party or political persuasion, and regardless of whether you celebrated or groaned at the news, the vast majority of Americans were consciously awaiting this decision. But do you know exactly what this law means for you as a Taxpayer? If not, you should keep reading…
Here is what to expect next year, in 2013:
- Medicare taxes increase for upper-income earners. A surtax of 0.9% for single individuals with more than $200,000 in wages and couples earning over $250,000. The surtax is on the employee’s share of payroll taxes. The surtax hits the self-employed as well.
- Unearned income is subject to a 3.8% Medicare surtax for single individuals with a modified adjusted gross income (“AGI”) in excess of $200,000 and married couples earning more than $250,000. AGI is your gross income less any above the line deductions on page 1 of your 1040 (e.g., alimony, certain retirement savings, some higher education expenses, Health Savings Accounts, some interest on education loans, etc.). Modified AGI equals your AGI plus tax-free foreign earned income. The surtax applies to the lesser of net investment income or the excess of modified AGI over particular thresholds. Investment income includes dividends, interest, annuities, capital gains, royalties, passive rental income; it does not include tax-free interest or distributions from retirement plans.
- An excise tax of 2.3% on medical devices kicks in. Most retail items escape this fine.
- If you are under age 65, the 7.5% of AGI floor on deducting medical and dental expenses jumps to 10%.
- The federally subsidized portion of retiree drug plan costs become nondeductible.
In time, the list continues to grow:
- In 2014, individuals without health insurance will owe a penalty tax equal to the greater of $95 or 1% of income above the filing threshold (i.e., the income level that triggers the requirement to file). The penalty is capped at $285 for families.
- In 2016, the penalty rises sharply – the top levy will be $2,085. Taxpayers at the lower to mid-level income will receive an income tax credit to help with this expense.
- Businesses with at least 50 full-time employees without a health plan will owe an excise tax if even one employee gets the credit. The tax will equal $2,000 times the number of employees (with a 30-employee offset). The tax will also be taken if an employer offers substandard coverage or coverage too expensive for employees to afford. The rate goes up to $3,000 if any employee buys coverage through an exchange. The tax is not deductible to businesses.
- Insurers will face a fee too: $8 billion in 2014 going up to $14.3 billion by 2018.
- In 2018, insurance firms and self-insurers with “Cadillac” plans get hit with a 40% tax on the cost of plans in excess of $10,200 for individual coverage and $27,500 for family plans (in most cases).
Republicans are promising to repeal Obamacare, but that requires that they reclaim the White House and Senate and retain the House this November…just to have a chance at repeal. Until then, you have an idea of what is to come: more and (more complicated) taxes. Not to mention that the IRS will be growing considerably as it has an increasingly prominent role in healthcare reform.
If you have concerns about tax planning and how it relates to your estate plan, your business or investments, or asset protection concerns, contact our firm. Our attorneys have the knowledge and experience to protect you and your family during these uncertain and taxing times.
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