Health Reform Is Law; How Will It Affect Your Taxes

by TheWritingCowboy

There's lots to know about Obamacare when it comes to your taxes. Here are some tips.

The recent passage of the Affordable Care Act in the U.S., also known as Obamacare, had me wondering: How will my taxes be affected by the new law. The law requires everyone in the U.S. to have health insurance. I do, so I’m not concerned about getting insured. But, if you have insurance or not you might, like me, be wondering what the law does – or will it do – to your taxes.

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Health Reform Is Law; How Will It Affect Your Taxes

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The ACA has been examined a great deal and what I found was that there are two classes of people for whom the law might have a significant impact – high earners and folks who incur a lot of medical expenses but don’t get reimbursed for them. I don’t fall in to either category, but you might so read on.

The tax impact of the new law really kicks in starting in 2015. When you file your tax returns questions about health coverage and tax consequences will become evident.

The Effect On High Incomer Earners

According to the Internal Revenue Service (IRS), if you have adjusted gross income (AGI) of $200,000 or more you’ll pay an additional 3.8 percent tax on your investment income.

Taxpayers with a modified AGI of $200,000 or more in 2013 ($250,000 if filing jointly, or $125,000 if married filing separately) will pay an additional 3.8 percent tax on investment income, such as interest, dividends, capital gains, rental and royalty income. The 3.8 percent tax is in addition to the tax you already pay on investment income (not including allowable deductions for various expense related to your investment). You’ll also start paying just under 1 percent Medicare tax on your wages – that will automatically be deducted from you wages. If you are a business owner or self-employed there’s a form, Schedule SE, you’ll use to figure out what you owe.

Medical Expenses

If you itemize your unreimbursed medical expenses on your taxes, things will change. What used to be a seven percent minimum to deduct expenses (meaning your medical expense totaled at least 7.5 percent of your AGI), now the minimum has jumped to 10 percent. If you’re over 65 it stays at 7.5 percent.

Additional Tax Impact

Some other considerations to think about tax-wise will soon take affect as well. For example, if your get your health insurance from a state or federal marketplace, you could qualify for the ‘advanced premium tax credit.’ This credit will be paid directly to your insurance company and that will mean lower monthly premium costs for your health insurance (or as a refund if you pay your total insurance premium).

For those who choose not to get health insurance, there’ll be a price to pay on your federal tax returns in 2015 and beyond. Although the penalty may vary generally it will be one percent of your 2014 income or $95 per person, whichever is higher. The penalty for uninsured dependents under the age of 18 is $47.50 per child, up to $285 total per family.

There’s a lot more information about health insurance and its tax consequences available at the IRS’ website. It can be quite daunting to plod through, as I found, so you might want to bone up on it well before tax time rolls around. Or you can rely on your tax preparer to get it right.

Learn more about tax law changes at www.irs.gov. A free year-by-year guide and health care credit and penalty calculators can be found at www.healthcareact.com.

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Updated: 07/31/2014, TheWritingCowboy
 
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