We get quite a few questions and comments regarding the Patient Protection and Affordable Care Act or in other words Obamacare. This blogs reviews the 2013 tax changes.
Additional 0.9% medicare tax on earned income for higher earning individuals
There is an additional 0.9% medicare tax on employment income or self-employment income earned above $250,000 for joint filers, $125,000 for married filing separate, or $200,000 for all others i.e. single, surviving spouse, and head of household.
Additional 2.9% medicare tax on unearned income for higher earning individuals
There is an additional 3.8% medicare tax on the lessor of net investment income or the excess of modified adjusted gross income (MAGI) above $250,000 for joint filers, $125,000 for married filing separate, or $200,000 for all others i.e. single, surviving spouse, and head of household. Net investment income includes gross income from a passive activity, gain on the sale of investment property, taxable gain on sale of residence, taxable interest, dividends, stock sales, rents, royalties, and non-qualified annuities.
The threshold for deducting medical expenses as an itemized deduction has increased
For taxpayers under the age of 65, your medical expenses must exceed 10% of adjusted gross income (AGI) to claim a deduction. This is an increase from 7.5%. If you or your spouse are older than 65 then your floor is 7.5% until 2016. Starting in 2016 the floor increases to 10% for all taxpayers.
The deduction for retiree drug coverage was eliminated
Describing this deduction would take an other blog. This deduction will impact companies that receive a federal subsidy for providing prescription drug coverage to retirees. Click here for a comprehensive article on this topic.
$500,000 compensation deduction limit for Health Insurance companies
A health insurance company is allowed to deduct up to $500,000 of compensation paid to individuals such as employees, directors, consultants, and officers as a business expenses. Compensation paid in excess of $500,000 is not deductible. A company is consider a health insurance company if at least 25% of the premiums it receives is from health insurance plans.
New excise tax on medical equipment
There is a 2.3% excise tax on the sales of medical equipment. Medical manufactures are responsible for paying the tax and filing excise tax returns. Medical manufactures do have the option to pass this tax to consumers. A good FAQ is available on the IRS site. Medical equipment does not include eyeglasses, hearing aids, contact lenses, or any other medical device that the public generally buys at retail for individual use as determined by the IRS.
Contribution cap on Flex Spending Account (FSA)
$2,500 is the maximum amount an employee can withhold from their wages and contribute to a FSA account for health care. This limit does not apply to an FSA for adoption care assistance or dependent care assistance. More details on this change can be found here.
There is a fee on all health plans
There will be an annual fee of $1.00 per year, multiplied by the average number of lives covered under the plan for plan years ending before October 1, 2013. For plan years starting October 1, 2013, the annual fee increases to $2.00 per year, multiplied by the average number of lives covered under the plan.
Reporting of the total cost of health insurance on employee’s W-2
For companies with 250 or more employees, they are required to report the total cost of health coverage on their employees W-2. This requirement started for 2012 W-2s. This amount is reported in Box 12 of your W-2 with the code DD.
This is a summary of the tax changes for 2013 due to the Patient Protection and Affordable Care Act. The next blog will review tax changes for 2014 and 2018.
If you have any questions give us a call, ALG Tax Solutions 855-MI-Tax-Help (855-648-2943) or provide your contact information online.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.