Health Care Tax Act and Its Impact on Taxpayers

The Patient Protection & Affordable Care Act, which is referred to as "Obama Care", was signed into law by Barack Obama on March 23, 2010. This Act was designed to overhaul the U.S. healthcare system by providing affordable health care coverage to all Americans. Since its passage there has been significant opposition to the Act but just recently, the Supreme Court upheld the constitutionality of the legislation. Funding for this Act will come mainly in the form of Medicare surtax on upper income taxpayers as follows:

• Beginning in 2013, there is an additional .9% Medicare tax for high income earners. The self employment or wages of single taxpayers in excess of $200,000 and married taxpayers (filing jointly) in excess of $250,000 will be subject to the additional tax.
• Beginning in 2013, there is an additional 3.8% Medicare tax on unearned income such as interest, dividends, capital gains, annuities, royalties, and rent. Single taxpayers with earnings over $200,000 and married taxpayers with earnings over $250,000 will be subject to the additional tax. This provision is significant since it is the first time that the federal government has assessed Medicare tax on unearned income. Tax exempt interest and income from retirement accounts are exempt from this surtax.

Additional other taxes and limitations on deductions will apply as well. Some of these changes are listed below:

• Beginning in 2013, all flexible spending account contributions are reduced to a $2,500 maximum limit.
• Beginning in 2013, all qualified out of pocket medical expenses must exceed 10% of an individual's adjusted gross income in order to receive a deduction on their tax return (presently the threshold is 7.5%). Taxpayers over 65 years old are subject to the 7.5% limit through 2016.
• Penalties will increase to 20% for any non-medical distributions from a Health Savings Account.

These tax law changes can have a significant impact on the amount of tax each individual will owe in the 2013 tax year. If you have any questions or are interested in learning how these changes will affect your 2013 tax liability, please contact Jennifer Pacilli at 302.691.2204 or by email. In addition, Cover & Rossiter will be holding seminars at both our Wilmington and Middletown offices to explain in more detail these changes and answer questions you may have. The dates of these seminars are as follows:

Wilmington office: September 25th 8:00 AM

October 23rd 5:30 PM

Middletown office: October 2nd 5:30 PM

To register for a seminar click here or call 302.691.2224.

This is originally posted on our website here.