The Patient Protection and Affordable Care Act (PPACA), often referred to as Obamacare, is being implemented in stages, and some of the changes as a result of the 2010 law are being introduced in 2013.
Some of the changes that are coming as a result of the PPACA could very well affect your tax bill. Here are some of the changes you might see as a result of Obamacare, starting 2013:
Change to the Healthcare Deduction Limit
Right now, if your out of pocket healthcare expenses are more than 7.5% of your AGI, you are allowed to deduct the amount above that threshold. So, if your AGI is $50,000 right now, and you had $5,000 in out of pocket expenses for healthcare, you can figure your tax deduction as follows:
Multiply 50,000 by 0.075 to get 7.5% of your AGI, which is $3,750. Next, subtract that number from the $5,000 that you spent out of your pocket: $5,000 – $3,750 for a deduction of $1,250. This reduction in your taxable income can help lower your tax liability overall.
However, starting in 2013, that all changes. The new threshold is 10%, so, in our example, if you spend $5,000 out of pocket, you won’t receive a deduction, since you are just at the threshold. For 2013, the changes only affect those under 65; those 65 and older will see this change in 2017.
You can work around this if you get a high deductible health care plan and get a Health Savings Account to go with it. That way, you can get a tax deduction for your healthcare spending without worrying about a threshold. But you need to be careful, since the high out of pocket costs with this setup can be devastating for those with chronic conditions and frequent health visits.
Unearned Income Surtax for Medicare
Another change to taxes in 2013, thanks to the PPACA is the Medicare surtax. Those who make more than $250,000 a year (married filing jointly) or $200,000 a year (single), could be subject to a Medicare surtax of 3.8%. You will be charged this surtax on the lesser of your excess Modified AGI above the limits, or your net investment income.
Penalty for the Uninsured
2013 is also the year that the uninsured start paying a penalty for lack of insurance. The penalty is 1% of the threshold requiring you to file a tax return or $95, whichever is larger. There is a cap of $285 for families, though. The penalty rises each year until 2016, when the cap is $2,085. Families can get tax credits to help some with lower incomes offset the cost of healthcare.
More Tax Issues from Obamacare
Other tax issues coming in 2013 include a cap on flex spending accounts. Now you will be limited to $2,500 in tax-deductible contributions to your flex spending account. For those who routinely contributed more for the tax deduction, this will have an affect.
On top of that, there will be a 2.3% excise tax on medical devices. Some of these devices include prosthetics and wheelchairs. However, items that you are used to buying in a retail setting, such as eye care items and hearing aids, won’t be subject to the new excise tax.
Take a look ahead to 2013, and pay attention to what might be coming in your situation, and take steps to limit the impact of these new taxes on your finances.