Snyder and Associates


Tax Byte

Health Care Reform and Taxes 

Now that the Supreme Court has upheld the constitutionality of the Affordable Care Act, there are several significant tax provisions that go into effect in 2013.  These provisions include:

  • Upper-income Medicare Surtax on Wages – individuals with wages exceeding $200,000 (or $250,000 for married couples) will pay a 0.9% surtax on their Medicare wages.  Presently, all individuals pay a Medicare tax of 1.45% of their wages.  This rate will increase to 2.35% for higher wage earners.
  • Upper-income Medicare Surtax on Unearned Income – individuals with modified adjusted gross income over $200,000 (or $250,000 for married couples) will pay a 3.8% Medicare surtax on investment income (e.g., interest, dividends, capital gains, royalties, and passive rental income).  Presently, these types of income are not subject to Medicare taxes.
  • The 7.5%-of-Adjusted Gross Income floor that currently exists for deducting medical expenses will increase to 10%.  This means that for taxpayers who itemize their deductions, they will not be able to deduct as much in medical expenses.  For example, an individual with an AGI of $50,000 and $5,000 of medical expenses can currently deduct $1,250 of the medical expenses ($50,000 x 7.5% floor = $3,750…the medical expenses in excess of $3,750 are deductible).  Under the new law, this taxpayer would not be able to deduct any medical expenses ($50,000 x 10% floor = $5,000…the floor would equal the taxpayer’s medical expenses, and thus none would be deductible).

The Affordable Care Act includes a significant number of changes to health care in the United States.  Some of the changes have already been implemented, but the most impactful changes are yet to come.  As implementation details of the Act become known, we will continue to keep you abreast through future TaxBytes.

 

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