Everyone is saying it. The new health care law, or the Affordable Care Act, will impact everyone. Naturally we are all anywhere from curious to compelled to find out how it will play into our individual lives. But the law is about 2000 pages long and in legal jargon, no less! So how are we, the average person whom it will reportedly affect, supposed to understand it?!
Luckily for you, I have researched and befuddled through it already. Below I will give a plain-speak, as simple as possible explanation of the act and its tax consequences to you, the average Joe and Jane. But as you read, keep in mind the following:
1) Details may evolve and change as time passes and implementation demands it.
2) I will only highlight parts of the act that affect average people’s taxes. This law also affects hospitals, pharmaceuticals, doctors, insurance companies, medical device manufacturers, small businesses, large businesses, but that is for another very long and boring post (that I will not be writing).
Provisions that have already been enacted
- Adoption credit and exclusion increased
- 10% indoor tanning excise tax
- Small Business Health Care Credit
- Withdrawals from Health Savings Accounts or Medical Savings Accounts for non qualified uses incur a penalty tax of 20% of the withdrawal amount (up from 10% and 15% respectively)
- Flexible Spending Accounts no longer allowed to reimburse for over the counter drugs (excluding insulin)
Beginning in 2013
- An extra 0.9% Medicare tax on all wages over $200k (single)/$250k (married)–employers will withhold this extra tax from paychecks along with already existing payroll taxes
- Flexible Spending Account contributions limited to $2500 per year–employers cannot contribute more than $2500 to an employee’s FSA in a year
- An extra 3.8% tax on unearned income (which means dividends, interest, rents, annuities, capital gains) for individuals making more than $200k (single)/$250k (married)
- Medical deduction floor up to 10% AGI from 7.5%. Currently you may deduct on your taxes medical expenses when they go above 7.5% of your adjusted income; starting in 2013 you may only deduct these expenses to the point they are higher than 10% of your income. For example, if you paid $8,000 in medical expenses and have $50,000 adjusted income; in 2012 you could deduct $4,250 (8,000 – (50,000 x .075)) and in 2013 you could deduct $3,000 (8,000 – (50,000 x .10))
Beginning in 2014
- All persons required by law to have health insurance. Those who do not have it will be penalized and pay a fee that will likely be paid with their taxes.
- Employers with more than 50 employees who do not offer insurance coverage to their employees will be subject to penalties.
I have only barely skimmed the surface to give you some understanding of the Affordable Care Act and how it may affect you. But the law is broad and encompassing. If you would like to read into more detail (and have a few hours to do so), follow these links.