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Health Reform & Taxes

On June 28th the US Supreme Court upheld the health reform, stating that requiring people to buy minimum essential health coverage or pay a penalty is legal under the Constitution.  The justification for the decision was based on the constitutional right of Congress to impose taxes.  They cannot force you to buy insurance, but they can impose a tax on you if you do not have it.  But this reform does not just affect those without health coverage, it has many tax implications.

Starting in 2013, higher income earners will pay more in Medicare taxes.  A .9% surtax will be charged on the employee’s share of Medicare for singles with wages over $200,000 and couples over $250,000. This also applies to self-employed individuals. A Medicare surtax of 3.8% will be charged on unearned income such as dividends, interest, etc. for those taxpayers with a Modified Adjusted Gross Income (AGI) of $200,000 for singles, and $250,000 for couples.  Modified AGI is AGI plus tax free foreign earned income. The AGI floor for deducting medical expenses will jump from 7.5% to 10% for filers under age 65, the pay in for flexible spending accounts will be capped at $2,500/yr, a medical excise tax of 2.3% will apply to medical equipment, and retiree drug plan costs that are federally subsidized will be nondeductible.

Starting in 2014, those who have not obtained minimum essential health coverage will be subject to a penalty tax consisting of the larger of $95 or 1% of income over the filing threshold.  The penalty will be capped at $285 for families.  These penalties will increase dramatically by 2016, with the top fine being $2,085. Also by 2016, lower to middle income earners will receive a tax credit to help them afford the coverage.  The law impacts business owners as well.  For companies with 50 or more full time employees that do not offer health coverage, a nondeductible tax of $2,000/employee will be charged if even one employee qualifies for the credit.  A penalty will also apply to company’s whose health coverage is substandard or too costly.

It seems that the IRS has begun to take a large role in health reform, which is only expected to increase and additional taxes and penalties are already being discussed for 2018.

If you have any concerns or questions about how these new rules will affect you, please feel free to contact us and we would be happy to help.

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