Recently the ACA was upheld by the Supreme Court. The Affordable Care Act survived when Chief Justice John Roberts joined the majority in deciding that the healthcare mandate, a penalty individuals and businesses must pay if they do not purchase health insurance, is indeed a tax and therefore constitutional.
The result is that the implementation of the law will continue.
Most taxes in the Affordable Care Act are embedded and paid by hospitals, insurers and medical device companies. However, certain more general taxes related to the Affordable Care Act will affect many directly. The following are highlights of non-embedded taxes and provisions that will affect people going forward. Non-embedded means I am not listing taxes such as the medical devices or tanning bed taxes:
- Businesses are provided a credit of up to 35% of their health insurance coverage costs, provided that they have fewer than 15 employees and average compensation is below $50,000. Phase-outs begin at 10 employees and $25,000 in compensation.
- The adoption tax credit was increased, made refundable, and extended through 2011. The credit amount dropped in 2012 and is scheduled to expire in 2013 unless action is taken to extend it.
- Tax savings HSA accounts can no longer be used to purchase over the counter medicines.
- Distributions from HSA accounts that are not used for qualified medical expenses incur a penalty that is increased from 10% to 20% under ACA.
- Though not a tax, employers will need to include health benefits paid on their employees’ W-2s. This will not be included in taxable income, but will help the IRS begin to track which companies are paying benefits to assist in enforcement of the mandate tax.
- The 3.8% surtax on investment income for individuals making more than $200,000 and married couples making more than $250,000 will be implemented in 2013. This will be in addition to a return to pre-Bush tax rates on investment income if the current rates are not extended.
- Wages and self employment income in excess of $200,000 for individuals and $250,000 for married couples will be subject to an additional .9% in Medicare taxes. This will affect non-S Corp partners and sole proprietors as well.
- Affecting itemizers with high medical costs, the AGI floor for deducting medical expenses on Schedule A will increase from 7.5% to 10%.
- Pre-tax FSAs will be limited to $2,500 per year. Previously they were unlimited. Some have referred to this as a “special needs” tax because it will affect families with uninsured medical expenses such as special needs school tuition that exceed $2,500 per year.
- The mandate tax will be implemented over a three year period. When fully implemented, the tax will be the higher of 2.5% of AGI or $695 per adult on families who do not have health insurance.
- Companies with 50 or more employees who do not provide health insurance to eligible employees will owe $2,000 per employee. They will owe $3,000 for employees who purchase insurance individually from the health exchanges.
- Tax credits will be made available for individuals and families who make less than 400% of the poverty level. This is measured per household size per year. For 2012, 400% of the poverty level for an individual is $44,680, and for a family of 4 is $92,200. These credits will be available to use when purchasing health insurance from Federally created insurance exchanges.
- The 40% tax on higher priced insurance plans begins. “Cadillac” plans are considered to be plans that cost $10,200 for individuals and $27,500 per family.
Again, this is not a complete list of taxes and benefits included in the bill, but specifically addresses the taxes and benefits that will affect significant numbers of our clients. If you have questions regarding the continuing implementation of the healthcare act and how it affects you, please don’t hesitate to contact us.