Yesterday morning President Barack Obama signed the historic health care reform bill into law. Many experts are citing the legislation as the largest social package to pass through Congress in over forty years, and it will obviously have a significant impact on all American taxpayers. There have been dozens of stories published regarding health care reform, and it can be hard to comprehend everything. Therefore, I have gathered a list of the 10 most important things you should know about the tax implications of the legislation.
1. Mandatory Coverage Penalties in 2014
As you have probably already heard, beginning in 2014 you will be required to have health insurance. If you do not, then you will be forced to pay a $95 per person (or 1% of your income) fee. In 2016 this amount will increase to $695 or 2.5% of your income.
2. IRS Enforcement / Additional Costs
Unfortunately, the IRS is slated to take care of handling the mandatory coverage penalties that take effect in 2014. However, as Professor James Maule explains in this blog entry the thought of the IRS reviewing and approving every single American’s health insurance plan, when they can barely handle processing tax returns will be interesting to see. Additionally, the Congressional Budget Office has estimated they would need at least $10 billion dollars in additional funding to meet this new responsibility.
3. Low Income Subsidies
To help offset the cost of purchasing health insurance for your family, the federal government will provide taxpayers who cannot afford coverage with significant subsidies. It has been estimated that all families making under about $88,000 per year will qualify for some type of tax incentive.
4. Fees on Employers
You probably already know that under the package large businesses will be required to provide coverage for employees or pay a per worker fine. However, under the compromise package this fee was raised from $750 to a staggering $2,000. Employers will be able to qualify for a temporary tax credit of up to 35% of their contributions towards health insurance premiums.
5. Medicare Tax Changes
One of the largest tax increases in the new health care reform legislation is the additional Medicare tax on high-income taxpayers. Single workers making over $200,000 and married couples filing a joint return that make over $250,000 will be required to pay an additional 0.9% Medicare payroll tax. However, this is not the only Medicare related tax increase. A new 3.8% Medicare tax will be imposed on net investment income.
6. Doughnut Hole Rebates
In order to fill the hole in prescription drug coverage, all senior taxpayers in the country will receive a $250 “doughnut” hole rebate this year.
7. Medical Expense Deduction Increase
Another component of the new law increases the minimum for qualifying for the medical expense deduction. Currently, in order to claim the deduction your medical expenses need to total 7.5% of your adjusted gross income, but in 2013 it will be raised to 10%. However, seniors will be exempt from this increase until 2017.
8. Cadillac Taxes
Another tax implication of health care reform that I have discussed many times over the past few months, are the “Cadillac taxes” that will be imposed on high-cost employer provided health care plans. This tax will be 40%. However, the qualifying amounts were raised in the compromise package to $10,200 for single taxpayers or $27,500 per family.
9. The Tanning Tax
Starting July 1, 2010 a 10% tax will be levied on all payments made for indoor tanning services. This new “vanity tax” could raise up to $2.7 billion over the next decade, but it has been estimated that the tax could result in a lost of nearly 9,000 jobs in the tanning industry.
10. Adoption Tax IncentivesOn a seemingly unrelated note, the health care reform bill also extends and expands the tax credits for adopting a child. The refundable credit has been extended through 2011, and the value was increased by $1,000.