“Take it from the U.S. Supreme Court: Health care reform wasn’t just an overhaul of the insurance market, it also was a major piece of tax legislation.
That’s why now is a good time to review all of the tax provisions in the Patient Protection and Affordable Care Act. It’s possible Congress could repeal them — it already has repealed two provisions aimed at making sure businesses pay all the taxes they owe (expanded 1099 reporting requirements and 3 percent withholding of payments to government contractors.)
But full repeal remains a long shot. So here’s a refresher course on the tax penalties, the tax increases and the tax breaks that Congress included in health care reform: Tax penalties
• Individuals who don’t have insurance: Unless they’re exempted due to financial hardship or other reasons, individuals without insurance will pay a penalty of at least $95 in 2014, $325 in 2015 and $695 in 2016. After 2016, the penalty will be adjusted for inflation.
• Employers who don’t provide insurance: Employers with 50 or more full-time workers that don’t offer coverage will be charged $2,000 per full-time employee if any of these workers receive a tax credit for their premiums from the government. The employer’s first 30 employees will be excluded from this assessment.
Even employers who do offer coverage could be subject to penalties, if any of their workers receives a premium tax credit. In this case, employers will be charged either $3,000 for each employee receiving the tax credit or $2,000 for each full-time employee, whichever is less. Again, the first 30 full-time employees will be excluded from this assessment.
Employers with fewer than 50 full-time employees aren’t subject to these penalties. Tax increases
• Taxes on specific industries:
– 10 percent tax on indoor UV tanning services went into effect in 2010.
– Manufacturers and importers of brand-name drugs began paying an annual fee in 2012, starting at $2.8 billion.
– 2.3 percent excise tax on medical devices goes into effect in 2013.
– Health insurance companies will start paying an annual fee in 2014, starting at $8 billion.
– Insurers that offer high-premium plans (i.e. “Cadillac” plans) will be subject to a 40 percent nonrefundable excise tax.
• Taxes on individuals:
– Beginning in 2013, taxpayers will pay an additional 0.9 percent Medicare tax on earned income in excess of $200,000 ($250,000 for families).
– Taxpayers with an adjusted gross income (AGI) over $200,000 ($250,000 for joint filers) also will pay a 3.8 percent Medicare tax on unearned income, such as interest, dividends, rents, royalties and certain capital gains. Retirement plan distributions aren’t subject to this tax.
– The threshold for deducting unreimbursed medical expenses will be increased from 7.5 percent of AGI to 10 percent of AGI in 2013. Tax credits
• Small businesses: Businesses are eligible for a tax credit worth up to 35 percent of their share of their employees’ health premiums if they meet the following conditions:
– They employ fewer than 25 full-time equivalent workers;
– Their annual average wage is less than $50,000; and
– They cover at least 50 percent of the cost of health insurance for an employee with single coverage.
This tax credit will increase to 50 percent in 2014, and then go away after two years.
• Individuals: In 2014, people with income between 133 percent and 400 percent of the federal poverty level will become eligible for tax credits or cost-sharing subsidies to help cover the cost of insurance. The amount of these credits will vary, depending on income.”