Starting in 2010 and continuing through 2018, The Health Care Reform Acts contain a significant number of tax provisions that affect individuals and business entities. Below, we provide a brief summary of key changes affecting individuals.
Adult Children Coverage
Effective March 30, 2010, the Acts extend the employer provided health care coverage gross income exclusion to coverage for adult children under age 27. Self employed individuals are allowed a deduction for the premiums paid on such dependent coverage. A child is defined as a son, daughter, stepson, stepdaughter, or eligible foster child of the taxpayer.
Tax on Indoor Tanning Services
Starting July 1, 2010, the act imposes a 10% tax on amounts paid for indoor tanning services. The tax will be assessed at the point of sale.
Additional Medicare Payroll Tax on High-Income Taxpayers
Currently the employee portion of the hospital insurance trust fund portion of FICA is 1.45% of covered wages. Starting in 2013, this tax will be increased by .9%, to 2.35%. For joint filers or a surviving spouse, the tax will be imposed on wages over $250,000; $125,000 for married filing separate; and $200,000 for all other filing statuses. The wage level amounts are not currently indexed for inflation.
Medicare Tax on Investment Income
Also starting in 2013, for the first time, is the new 3.8% nondeductible Medicare contribution tax on net investment income. Net investment income is interest, dividends, annuities, royalties, rents, gross income from a trade or business involving passive activities and net gain from the disposition of property (excluding inventory or property held in a trade or business). The definition of net investment income is investment income reduced by deductions properly allocable to such income.
For joint filers or a surviving spouse, the tax will be imposed on wages over $250,000; $125,000 for married filing separate; and $200,000 for all other filing statuses. The wage level amounts are not currently indexed for inflation.
Medical Expense Deductions
In 2013, the threshold for unreimbursed medical expense deductions is increased from 7.5% of adjusted gross income to 10% of adjusted gross income. For those taxpayers or their spouses turning 65 before the year end of the taxable year, the existing 7.5% threshold is in effect through 2016.
Tax for Failure to Obtain Minimum Essential Coverage
U.S. Citizens and legal residents who fail to maintain minimal amounts of health insurance coverage will be required to pay a tax penalty starting in January 2014. The penalty amount will be phased in over the years 2014-2016. Liens and seizures are not authorized to enforce this penalty, and noncompliance will not be subject to criminal penalties.
The following individuals are exempt from this provision:
Individuals who are not required to file a tax return due to income thresholds; incarcerated individuals; individuals who are not legally present in the U.S.; individuals who qualify for a religious exemption; individuals who do not maintain health insurance for a period of three months or less during the taxable year; all members of Indian tribes; and individuals who cannot afford coverage because their required contribution would exceed 8% of their household income.
Premium Assistance Credit
Starting in 2014, a refundable premium tax credit will be provided for eligible individuals and families who purchase health insurance through a state health benefit exchange. Eligibility for the premium assistance credit is based on the individual?s income for the tax year ending two years prior to the enrollment period. The premium assistance credit is available for individuals with household incomes between 100% to 400% for the federal poverty level (for the size of the family involved) who do not receive health insurance through an employer. The credit is determined by the Secretary of Health and Human Services.
Please contact our office for details of how the new changes may affect your specific situation.
© 2010 Cherie D. Putman CPA 5/28/10
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