Clients ask us everyday. This Obamacare thing. Will Obamacare affect my tax situation? Am I going to have to pay more? Is it more money out of my pocket. As usual, our answer is “it depends.” I know what a cruddy answer right? But we have no choice. We are at the mercy of Uncle Sam. So what is there to know about Obamacare and your taxes? Keep reading.
I think it’s time we address what the ACA will mean for us taxpayers in order to better understand the issues we face. I do believe in the KISS Principle. Keep it Simple, Stupid. But that is almost impossible to do with anything government related. Why in the world do they have to use jargon and verbiage that makes these things so difficult to understand? I do not know. So while I will try to make this as easy to understand as humanly possible, it still may sound quite confusing. I’m going to focus solely on the individuals in this post and save the business post for the coming weeks. So check back should you be a business owner. Here is what you need to know about Obamacare and your taxes.
The ACA is estimated to generate a total of $500 billion in new tax revenue by the year 2023. In all, there are 21 new taxes associated with the Affordable Care Act, some being tax increases and some being tax credits. The credits go to low income earners. The increases go to high income earners.
Uh oh. Does Uncle Sam consider me to be a high income earner?
Well ask yourself this: Do I make more than $200,000 dollars individually? Or does my family household income exceed $250,000? If the answer to either of these questions is yes, then congratulations, you are a high income earner. Oh and sorry about the tax increases. I know. It stinks.
So how many of us taxpayers will be affected?
Uncle Sam says 85% of Americans with health coverage already will see no significant change to their taxes. Well, that’s reassuring. Ha. The remaining 15% will see a change thanks to the individual mandate, the employer mandate, and tax credits linked to healthcare exchange premium costs. New limits will be placed on tax deductions for those of us with healthcare savings accounts or flexible savings accounts.
The biggest pain in the average American’s butt will likely be the individual mandate. This mandate says that anyone who can afford health coverage better get it, or else. Or else what? Just or else..!
How fantastic! Are there any exceptions?
Sure! An exception shall be granted if:
1. The premium from the lowest plan offered through your state’s exchange exceeds 8% of your annual household income.
2. The household income is below threshold for IRS filing statutes.
And maybe if:
1. You have certain religious beliefs.
2. You are a member of a Native American Indian tribe.
3. You are not a US Citizen.
4. You are behind bars. (prisoner)
Anymore fun stuff?
Yep. There is also a new surtax on certain investment income. So if you are one of those high income earners ($200k for Individuals, $250k for households) you will see a 3.8% tax on investment income.
But wait, there’s more. Individuals who say “No, I’m not giving in. I will not get qualifying health insurance.” will pay a percentage of their adjusted gross income that will increase depending on your scenario over the coming years. It will start a 1% of AGI and could increase to 2.5%
And let us not forget about:
1. Cadillac Tax: Healthcare plans at $10,200 for individuals, $27,500 for families.
2. High Bills Tax: Those of you with high medical bills will now have to exceed 10% of AGI, rather than 7.5%.
3. Health Savings Account Tax: Cap of $2,500 on flexible spending accounts.
4. Tanning Salon Tax: Do you love tanning beds? Expect to pay 10% more.
5. High Risk Tax: $63 fee on all plans to cover high risk.
Wow. I’m tired and my brain hurts. How about your brain? Does it hurt? It is important for you to understand the ramifications of the ACA and how it will personally affect your tax scenario. We hope this was somewhat easy to understand. Should you have any questions or concerns, never hesitate to give us a call or contact us below. The CPAs of L&A are happy to help.