Here at Loggins, we know that the Patient Protection and Affordable Care Act (PPACA or ObamaCare) has quite a bit of uncertainty surrounding it. We are preparing as if the law will go into effect as written. We’re writing this post because we want to help inform you with some of the basics of the law that we feel will affect the majority of people. The points below just focus on the taxes in the Act, and even then, we’re only focusing on the taxes that we feel will affect the majority of our clients. This post doesn’t deal with the health insurance costs or avenues that people can use to find insurance coverage. For a more complete list of provisions in the act, take a look at this page from the IRS.
The Individual Mandate
As the law is written, taxpayers that do not have health insurance will have to pay an additional tax starting in 2014. The tax is $95 per adult in 2014, then increases to $325 in 2015, and then $695 in 2016. There is a max of $2085 per year per family in 2016.
New Medicare Taxes
There will be two new taxes for Medicare — one as a payroll tax and one as a tax on net investment income.
The Medicare payroll tax is a .9% increase in the employee portion for wages over $200,000 single ($250,000 for MFJ, so there is a marriage penalty in there). This obviously affects the taxpayer, but also it will be mean a bit more complexity for small businesses that run their own payroll. This tax begins in 2013.
The other Medicare tax is one that we feel will probably affect quite a bit of people. There will be a 3.8% surtax on net investment income starting in 2013. Net investment income includes interest, dividends, capital gains, and passive income. Net investment income does NOT include municipal bond interest, retirement income, active business income, gains on sales of business assets, or gains on the sale of your personal residence. We see some planning opportunities in here, and we will be discussing those during our year end planning meetings with our clients.
The floor for deducting unreimbursed medical expenses will rise from 7.5% to 10% of your AGI in 2013. In plain English, it means that you’ll be able to deduct less of your out of pocket medical expenses.
By 2014, employers with more than 50 full-time employees will have to provide health insurance coverage, or face stiff penalties ($2000 – $3000 per employee). The law defines full time equivalent employees, so if for example, your firm employs 100 people for 20 hours per week each, then that would count as 50 full time employees. The insurance offered to the employees must be “affordable”.
There will be new Simple Cafeteria Plans available to employers. Employers should discuss these with your insurance agents to avoid the penalty mentioned above.
Starting in 2012, employers that issue over 250 W-2s will need to report the amount of health care coverage in box 12 of the W-2. This is informational only, and not added to the wages that are subject to tax. As of now, the IRS has postponed any additional requirement for employers that have less than 250 W-2s, but we feel that this requirement will be coming soon. This is not an additional tax, but it is an additional burden for businesses.
We hope that this gave you a bit of insight as to what is in the law, and how it will affect you. Please remember, also, that there is a high likelihood that the law will be tweaked and modified from its current form, and so these numbers may change in the future. Please make sure to give your tax professional a call to see how these changes will affect your situation.