THE HEALTHCARE ACT AND NEW TAXES IN 2013 BLOG – PART 3
By: Don Thomas
In my recent Blog – Part 1 I was discussing that there are new taxes in 2013 and in later years. Are you aware that this Affordable Care Act or Obamacare contains 20 new taxes or tax hikes starting in 2013 and future years? There are actually five new taxes that occur in 2013. Those five new taxes are listed below:
A. Medicare Surtax on Earned Income
B. Net Investment Income Tax
C. Increased Threshold for Medical Expenses
D. Limit on Flexible Spending Accounts
E. Medical Device Tax
In my previous Blog – Part 1 I discussed the Medicare Surtax on Earned Income and in Blog – Part 2 I discussed the Net Investment Income Tax. In this Blog #3 I will review the three other 2013 taxes listed above.
The next tax is the Increased Threshold for Medical Expenses. For 2013 medical expenses shown on the 1040 Schedule A must exceed 10% of adjusted gross income to qualify for a deduction. If a taxpayer is over 65 years old the 7.5% of adjusted gross income rate will remain until 2016. This change will negatively impact those close to age 65, retirement age and those other taxpayers with modest incomes but high medical bills. A question I get often is are the payments for medical insurance included in medical expenses? The answer is yes unless it is a self employed person filing Schedule C or reporting their insurance on the W-2 Box 1 as wages from an S corporation.
The next tax deals with the limits on Flexible Spending Accounts. A maximum of $2500 is allowed as contributions to Flexible Spending Accounts (FSA) in 2013. This amount reduces Box 1 of the W-2. Prior to 2013 these accounts were allowed unlimited contributions and the employer was allowed to impose a contribution limit. This change results in a $13 billion tax increase each year to taxpayers. There are 30 to 35 million taxpayers that make contributions to FSA’s each year. The FSA has been used to help families with special needs children who will be impacted the hardest due to the fact that tuition rates for these special needs children that can exceed $14,000 each year.
The final tax shown above is the Medical Device Tax. This is an Internal Revenue Code 2.3% excise tax on the sale of certain medical devices by the manufacturer or importer of the device. This is reported on IRS Form 720. This tax applies to taxable medical devices after December 31, 2012. The manufacturer, producer or importer of the device is subject to the excise tax when the product is sold. A key issue with this tax is that the manufacture or importation of these medical devices will likely raise the cost of hip and knee replacements and other medical procedures. The good news is that retail items generally purchased by consumers are exempt from this tax such as eyeglasses, contact lenses and hearing aids.
Due to the different tax situations you or others may experience I recommend that you talk with a tax professional that understands these laws and your tax situation to provide the professional guidance you might need in your situation.
I will be discussing the additional 2013 and future taxes and penalties resulting from the Healthcare Act in my next blogs. Thanks.
(Information provided courtesy of Health Care Taxes By Hasselback)
- Orlando Business Taxes & The Affordable Healthcare Act 2013
- Orlando Business Taxes & The Affordable Healthcare Act 2013 (Part 2)
- How Obamacare will affect your federal tax return (star-telegram.com)