Patient Protection & Affordable Care ActCourtesy: William Perez, your Guide to Taxes
This week I take a closer look at four tax provisions from the Affordable Care Act, which was recently upheld as constitutional by the Supreme Court.
Expansion of the Medicare Tax
Investors may have heard that an additional Medicare tax of 3.8% will be imposed investment income such as interest, dividends, and capital gains. While that's true, some further details are worth bearing in mind. The additional Medicare tax will apply to income over $200,000 for unmarried persons ($250,000 for married persons). And the tax will apply to a base of income that is the lower of net investment income or adjusted gross income. This "lower of" feature in the Medicare surtax creates opportunities for people to design their financial affairs to keep the new tax as low as possible.
See More About: medicare taxes
Reduction in Flexible Spending Accounts
Currently, employees can set aside up to $5,000 in a healthcare flexible spending account. Starting in 2013, that amount will drop to $2,500 per year. This will make flexible spending accounts less of a tax shelter, but could also reduce the amount of FSA funds that are forfeited under the "use it or lose it" rules. Robert DiMase (About Human Resources) has more information about FSA benefits.
See More About: flexible spending accounts standard employee benefits employee retention
Medical Deduction Threshold to Rise to 10%
Currently, people can deduct medical, dental and similar health care expenses as an itemized deduction, but only to the extent that the medical expenses exceed 7.5% of adjusted gross income. Starting in 2013, this threshold will be 10%. This will result in even fewer people being able to write off their medical expenses.
See More About: itemized tax deductions medical expenses
Small Business Tax Credit for Health Insurance Coverage
Employers with fewer than 25 employees may be eligible for a federal tax credit worth 35% of the cost of health insurance offered to non-owner employees. This particular provision of the Affordable Care Act is already in effect (since 2010), and will become more valuable in 2014 when the credit increases to 50% of health insurance premiums.
See More About: business tax planning health insurance tax credits
Investors may have heard that an additional Medicare tax of 3.8% will be imposed investment income such as interest, dividends, and capital gains. While that's true, some further details are worth bearing in mind. The additional Medicare tax will apply to income over $200,000 for unmarried persons ($250,000 for married persons). And the tax will apply to a base of income that is the lower of net investment income or adjusted gross income. This "lower of" feature in the Medicare surtax creates opportunities for people to design their financial affairs to keep the new tax as low as possible.
See More About: medicare taxes
Reduction in Flexible Spending Accounts
Currently, employees can set aside up to $5,000 in a healthcare flexible spending account. Starting in 2013, that amount will drop to $2,500 per year. This will make flexible spending accounts less of a tax shelter, but could also reduce the amount of FSA funds that are forfeited under the "use it or lose it" rules. Robert DiMase (About Human Resources) has more information about FSA benefits.
See More About: flexible spending accounts standard employee benefits employee retention
Medical Deduction Threshold to Rise to 10%
Currently, people can deduct medical, dental and similar health care expenses as an itemized deduction, but only to the extent that the medical expenses exceed 7.5% of adjusted gross income. Starting in 2013, this threshold will be 10%. This will result in even fewer people being able to write off their medical expenses.
See More About: itemized tax deductions medical expenses
Small Business Tax Credit for Health Insurance Coverage
Employers with fewer than 25 employees may be eligible for a federal tax credit worth 35% of the cost of health insurance offered to non-owner employees. This particular provision of the Affordable Care Act is already in effect (since 2010), and will become more valuable in 2014 when the credit increases to 50% of health insurance premiums.
See More About: business tax planning health insurance tax credits
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