Answers on Health Care Reform and Taxes

An article in USA TODAY answers questions posed by readers about the new health care law. Take a look at two of the questions and their answers:

Q: How will the new health care bill affect the amount I am taxed from each pay check?

A: It depends on how much you earn. In 2013, the Medicare payroll tax, which is now 1.45%, will increase to 2.35% for individuals who earn more than $200,000 and married couples filing jointly who earn more than $250,000. The additional tax is applied only to the amounts above those threshold levels. That means a single taxpayer with an annual income of $250,000 will pay an additional $450 per year in Medicare taxes, while someone earning $500,000 will pay $2,700 more a year.

Q: My wife and I are self-employed, own and operate a mom-and-pop retail/service business. (Our health care) premiums just went up $100 per month. We simply cannot afford this, but have no other choice. Most insurance companies only want group policies. Will this new bill do anything to help us?

A: Maybe, but not immediately. Beginning in 2014, small companies and individuals who don't have insurance through work will be able to purchase insurance through newly created marketplaces, known as insurance exchanges, created and regulated by the states.
Think of it as an Orbitz or Travelocity for health care insurance. The idea is to lower costs by applying the same market principles as the purchasing power of group plans.

The Congressional Budget Office (CBO) estimates that about 26 million Americans will purchase their policies through the exchanges. The CBO also estimates, however, that four in 10 people who buy insurance independently of a large employer could wind up paying 10% to 13% more. Others would receive federal subsidies to significantly lower those costs, so it depends how much you and your wife earn. Those earning up to 400% of the poverty level, or up to $88,200 for a family of four, will get some assistance.

Also, small businesses with fewer than 25 employees will be eligible for tax credits to help pay for health care costs for employees, as explained in a question above.

See more Q&A’s in the full article.

Medicare Tax Hikes: What The Rich Will Pay

There are plenty of tax changes in the new health care reform bill, but the group of taxpayers that will be hit hardest are families making $250,000 or more per year. As this CNN Money.com article explains, they will get hit with pretty significant Medicare tax increases.

Currently, the Medicare payroll tax is 2.9% on all wages -- with the worker and his employer each paying 1.45%.

Under the new law, starting in 2013, high-income individuals will pay another 0.9 percentage points -- so their share will total 2.35% of their wages.

A single person making $250,000 would pay an additional $450 a year into Medicare relative to what he pays today, according to calculations by Deloitte.

If he made $1 million, he would pay an additional $7,200.

Couples making $500,000 in wages would pay an additional $2,250. If they made $1 million, they would pay an additional $6,750.

Health-Care Reform's 'Back-Door' Tax

One of the most discussed parts of Obama’s health care reform lately has been possible affects on the Medicare tax. Currently Medicare taxes are only taken out of payroll wages, but Obama has proposed levying Medicare taxes on investment income as well. CNN Money wrote a great, in-depth piece on the proposed tax, and what it would mean for Americans, checkout a section of their article below.

Since its conception, the Medicare tax has always been tied to payrolls. Every paycheck, employers and employees each chip in 1.45%, regardless of how much someone makes. Under Obama's proposal -- which should be very close to what Congress winds up enacting -- a Medicare tax would now be applied to investment income too: Individuals who earn more than $200,000 and couples over $250,000 would pay an additional 2.9% surtax on unearned income from interest, dividends, annuities, royalties and rents.

Two things happen here. The first one is that the Medicare tax would go from being a payroll tax (like Social Security) to an income tax.

"You can certainly make the argument that [payroll is] really not appropriate anymore and we may as well tax all income," says Howard Gleckman, a senior research associate at the Urban Institute and editor TaxVox, the center's tax and budget policy blog. "But this is kind of a back-door way to do it."

The Democrats found their way to this "back door" because they couldn't agree on how to pay for the health-care bill: House Dems don't like the Senate's proposal to tax so-called Cadillac plans, and Senate Democrats don't like the House bill's inclusion of an income tax on the wealthy to pay for health care.