Supreme Court Clears Way for Affordable Care Act Taxes

Income Tax

The Supreme Court’s recent decision to uphold the Affordable Care Act will have considerable tax consequences for both high-income as well as middle-class Americans. In approving “Obamacare,” the Supreme Court characterized the health care mandate as a tax, a label that the Obama administration has been resisting in favor of the term “penalty.” By whatever name, the law will impact a large portion of Americans in the following years as it is implemented. Below is a timeline of most of the major tax provisions of the new law:
  • Effective in 2011, the penalty on non-qualified distributions from HSA’s doubled to 20%.
  • Starting in 2012, all W-2’s must include the value of health care benefits provided to employees.
  • Beginning in January 2013, individuals with over $200,000 annual income and married couples filing jointly with over $250,000 annual income must pay an additional 0.9% Medicare payroll tax on earned income.
  • Beginning in January 2013, a 3.8% Medicare surtax will be owed on the lesser of net investment income or the amount by which adjusted gross income exceeds $200,000 for individuals or $250,000 for married couples filing jointly. Such investment income includes income from capital gains, interest, dividends, annuities and royalties.
  • The itemized deduction floor for medical expenses for 2013 will increase to 10% of adjusted gross income.
  • Beginning in January 2014, uninsured Americans will face an additional tax penalty, starting at the greater of $95 or 1% of income in 2014 and rising to the greater of $695 or 2.5% of income by 2016. Penalties for families will be fixed at a maximum flat penalty of $2085, yet families will still owe 2.5% of household income if that amount is greater. While the IRS does not have the power to put a lien on your house under the Affordable Care Act in order to satisfy the penalty, it could possibly confiscate tax return refunds or dip into available credit.
  • Beginning in 2014, individuals with low income who purchase coverage will have access to a refundable tax credit.
  • Beginning in 2014, businesses that don’t provide adequate coverage will face a non-deductible fee of $2,000 per employee (not counting the first fifty employees).
  • Beginning in 2018, a 40% excise tax will be imposed on the portion of health care plans that exceed $10,200 for individuals and $27,500 for families.
What remains to be seen is whether the Act will be repealed by the Republicans after the election.
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