he Patient Protection and Affordable Care Act (PPACA), or simply the Affordable Care Act, a.k.a. “ObamaCare” has not only been a topic of recent discussion but also seems to be something that is certain and defined for 2013.
Something to keep in mind: The provisions don’t necessarily have to do with health care all the time, but they are ways of increasing tax revenue to offset the additional governmental costs of the Act.
One of the first changes is that the Adoption Credit is no longer a refundable credit. You will still get a credit on your tax return, but it cannot be part of your actual tax refund. So if the credit does go over the amount of taxes that you’ve prepaid or had withheld, your return will stop it from actually being refunded to you.
Another thing Obamacare includes is an Indoor Tanning Excise Tax. Again, this is just another way of taxing a particular service and increasing tax revenue. There will also be a tax credit for small businesses that provide certain amounts of health care. Any health care provided by employers will be reportable on the W-2. If you are a small business, and use a reliable payroll company like Paychex or ADP, the payroll company will usually take care of that reporting. It can’t hurt for you to take a moment to look and make sure that your payroll company is reporting anything you’re doing with health care on the W-2.
One of the biggest (and most controversial) revenue raisers are two additional taxes that mainly hit people at $250,000 adjusted gross income or above. One is an additional 0.9% tax on wages, compensation and self-employed income above:
$200,000 if you’re single
$250,000 if you’re married, filing joint
$125,000 if you’re married, filing separate.
You will want to make sure your withholdings are adjusted accordingly, especially if you are married filing jointly, so that you end up paying this 0.9% over the 52 weeks of the year and not a lump sum at the end of the year.
The other major change is the Net Investment Income Tax (the threshold amounts are the same as the amounts outlined above). Any investment income over those amounts will be taxed an additional 3.8%. This is disheartening to investors because capital gains are already likely to go up. Long-term capital gains right now are taxed at 15%; this tax is already headed towards 20 to 25% and this provision would add 3.8% on top of that.
Also in accordance to Obamacare, the flexible spending arrangements will stop at a $2,500 limit beginning in 2013. So, if you work for a bigger company that has these types of additional benefits, you would usually have to put money aside for a qualified medical expense. You get to take that money, tax free, out of your paycheck. This benefit is going to be capped at $2,500 per person each year.
Additionally, right now you can only deduct the medical expenses that are more than 7.5% of your adjusted gross income. Obamacare is moving that threshold to 10%. This is going into effect in 2013 for people under 65. The government does realize that this change will mostly affect the over 65 population and will wait until 2016 to apply it to those individuals.
Obamacare is also creating Health Insurance Exchanges in 2014, which will hopefully make it easier for individuals and small businesses to compare and buy health insurance. Massachusetts already has a similar health insurance exchange in place. When you file a Massachusetts tax return, you need to certify that you have insurance. If you do not have insurance, you have to provide a valid reason why. Eventually that will be on the federal tax return. You’ll have to include your policy number or explain why you don’t have insurance on the return, and that is how the government will keep track of those numbers. When you do go through these Health Insurance Exchanges, you should not need any tax return info because they will automatically be interfacing with the IRS system.
In closing, most of the new provisions will start in 2013. Whenever they put these new policies into place, the government will give it some kind of adjustment time. The tax revenue and the actual benefits do not start until 2013 to 2014. Even the other additional requirements on employers to provide certain benefits do not actually start until next year or the year after. Again, the government does tend to phase it in when it’s a big change like this; they know that they have to be somewhat reasonable in changing numbers and policies on people.
What changes will impact you and/or your business the most? Armel Tax is just a phone call away.