In March of 2010 President Obama signed H.R.3590 “Patient Protection and Affordable Care Act” into law after it passed both houses of Congress. It was hailed by his administration as being a breakthrough piece of legislation that would provide health care coverage to all Americans.
While more people will be covered by the law, it does come with it's costs – with the biggest one being an increased tax bill for many people. While it may be a while before this plan and it's taxes actually take effect, it's a good idea to know what you're in for in the coming years. (It should be noted that the law also has tax breaks to help both individuals and small businesses pay for insurance.)
Tax Hikes You Can Expect To See
There are quite a few places where people can expect to see an increase in their taxes due to the law. Among them (Sourced from Kiplinger.com):
- Individuals who don't obtain the required health coverage by 2014 will be hit with a new tax: The tax will be phased in over a three year period. It will start at the greater of $95, or 1% of income, in 2014. It will rise to the greater of $695, or 2.5% of gross income, in 2016. I'm not a big fan of this provision – I don't like being forced to buy coverage if I don't want to. In my opinion a lot of people are going to pay the tax instead of getting coverage, because there will be a more liberal non-exclusion provision as well – meaning if you get sick – you can just buy coverage and you can't be rejected for a pre-existing condition. Why not save some money and pay the tax instead?
- A nondeductible fee will be charged to businesses with 50 or more employees if they don't offer enough coverage: The fee will be $2,000 times the number of employees, though it won’t count the first 30 workers in that calculation. I'm not a big fan of this provision because many companies will find it cheaper to pay the fee, not provide coverage, and move people over to the government health care roles. I don't want more government control of health care – I can't say I trust that they'll manage it well.
- A new 40% excise tax, beginning in 2018, on high-cost health plans: So called “Cadillac Health Care Plans” will see a new 40% excise tax on portions that exceeds $10,200 for individuals and $27,500 for families. This will affect gold-plated plans offered by some employers, as well as some individual plans.
- The floor for itemized deductions for medical expenses will rise to 10% from 7.5%: The change will happen beginning in 2013. Taxpayers age 65 and over will be xempt from the change through 2016.
- A 0.9% Medicare surtax will be levied for incomes over $200,000 for singles, and $250,000 joint
- A Medicare tax will apply to investment income of high earners: For the first time ever investment income will be subject to a medicare tax. The 3.8% tax will be charged on the lesser of (1) their unearned income or (2) the amount by which their adjusted gross income exceeds the $200,000 or $250,000 threshold amounts.
- Restrictions on flexible spending accounts: The max you can contribute pre-tax to a flex spending account will be lowered to $2500 from $4-5000 previously. This takes effect in 2013. There will also be a ban on buying over the counter medications with your flex spending funds as of 2011. (this stinks for us – we use our flex spending account for a lot of this stuff.)
- Penalty for non-qualified distributions from a health savings account doubled: There will be a 20% penalty, beginning in 2011.
- Employer deduction for providing Medicare Part D prescription drug coverage for retirees removed: Will take effect in 2013. This has already resulted in many companies considering dropping coverage for retirees as it would be significantly cheaper for them. More people would be moved to the government roles.
- If you like to go tanning, there will be a new 10% excise tax on indoor tanning services: I don't care much about this, I don't tan – but they'll get more money wherever they can – they gotta fund it somehow!
Tax Breaks For Individuals And Small Business
In addition to the increased taxes, reduced deductions and fees, there will be some tax incentives for small businesses and individuals.
- There will be a refundable tax credit for some lower income individuals: Once the individual insurance mandate takes effect in 2014, people with a household income of between 100% and 400% of the federal poverty level (Around $11,000 to $44,000 for singles and $22,000 to $88,000 for families.) will get a health insurance premium tax credit. The credit will vary depending upon income. Full details here.
- Some small businesses will be given incentives to help provide insurance coverage: Small employers with 10 or less workers and average annual wages of less than $25,000 can receive a credit of up to 35% of their health premium costs each year through 2013. The credit is phased out for firms larger than that and disappears completely if a company has more than 25 employees or average annual wages of $50,000 or more.
So there you have it. Those are a few of the tax impacts that you will see as a result of the new health care law. Personally I'm not a big fan as I don't like government telling us that we have to have coverage, and I'm not sure that moving towards more government control of medicine is the answer (We've all seen how wonderfully they've managed the oil spill, right?) I'd be more in favor of another solution, things like portable coverage, health insurance pools for high risk individuals, and tort reform.
What do you think of the health care initiative? Are you willing to pay more for your coverage so that others can be insured? Will you be paying more due to any of the provisions mentioned here? Tell us your thoughts in the comments.