The New Health Care Law and Tax Implications for Individuals
The Health Care and Education Reconciliation Act of 2012 contains four provisions that will impact many Americans’ 2013 taxes. Many people are trying to make sense of the new 2,000-page health care legislation. In addition to many new services and insurance coverage in health care being provided to individuals, some provisions will impact your personal finances in 2013.
These four new provisions are
Medicare Tax Increase: This new increase applies to only those individuals earning more than $200,000 as individuals (or $250,000 for couples). If you are in this category in 2013, you will see an increase in your Medicare Part A tax rate. The increase will go from 1.45 to 2.35 percent. If you earn less than $200,000, you will continue to pay the current rate, which is 1.45 percent.
Medical Expense Deductions: Depending on how you file your taxes, you currently can deduct the amount of medical expenses that exceeds 7.5 percent of your taxable income. Starting in 2013 that amount increases to 10 percent of your adjusted gross income. If you are 65 years and older, the percentage remains at 7.5 percent until 2016.
Investment Income Tax: For those individuals earning more than $200,000 (or $250,000 for a couple filing jointly), beginning in 2013 you will pay a 3.8 percent tax on your net investment income including dividends, royalties, interest, annuities, capital gains, and rents.
This provision excludes income from Social Security, IRA distributions, or pensions. To determine the amount of tax, subtract $200,000 (individual) or $250,000 (couples filing jointly) from your taxable income. Compare the result with your net investment income. Finally, multiply the lesser amount by 3.8 percent to get the amount of the tax.
Flexible Spending Accounts: Several employers provide flexible spending accounts for their employees. This account allows you to allocate part of your salary before it is taxed to help pay for some allowable medical expenses. Starting in 2013, the maximum amount that can be contributed to this account is $2,500 and is expected to increase in future years based on the cost of living.