The following commentary exresses the political view of the author and in no way represents the views of LPL Financial. The assumptions made are based on the proposed 2013 budget and tax provisions, which have yet to be approved by Congress and are subject to change.
The Supreme Court of the United States of America has upheld the health care law. The provision in the law that requires people without insurance to purchase insurance or pay a fee was deemed constitutional under the power of Congress. I hear a ton of fallacies from the American public, mostly because people do not understand the complexities of the law or how it will impact them specifically. Also, many folks are simply moaning about the liberal president and how this awful law will destroy America. Well, of course it will not, despite the efforts of Republicans who have voted 33 times to repeal the law, wasting some $50 million (and counting) of taxpayer funds. I am fairly certain that many low income taxpayers who are against Obamacare do not even realize that they will be helped by the provisions of the law.
But what does this all mean for you? Let’s review some of the key provisions of the Affordable Care Act, and its effect on your particular situation:
1) Some changes already went into effect in 2011 and 2012, most importantly that children can now stay on their parents plan until they are 26 and that insurance companies can no longer deny insurance to children who have pre-existing conditions. Tax credits are available to small businesses to help cover the cost of the premiums.
2) In 2013 many of the big changes will take effect. Upper income earners will be the ones hit the hardest. If you are single and make more than $200,000 or married and make more than $250,000, you will pay a .9% additional Medicare surtax. That translates into $1800 for the single taxpayer and $2250 for the married taxpayer. If your income doubles, than the tax is doubled. Self-employed taxpayers will take the hit here too. A couple making $500,000 will pay $4500 extra in tax for 2013.
3) A 3.8% Medicare surtax on unearned income will be imposed in 2013. Income includes interest, dividends, capital gains, annuities, and passive income from rental properties. The same income limits apply, $200,000 for singles and $250,000 for married tax payers. So for example, let’s say a married couple with $400,000 modified Income has a dividend form general Electric stock totaling $20,000. This family will pay an extra $760 in the Medicare surtax.
4) Other items which will take effect in 2013 include the limitation on the deduction for medical expenses for filers under 65 years old, a 2.3% tax on certain medical devices, payins to flexible spending accounts will be capped at $2500/year, and the retiree drug plan that is federally subsidized will not be tax deductible
5) In 2014, Medicaid will expand to cover those families that are at the 133% poverty line, equal to a salary of $30,657 for a family of four. This is sure to help out these families in need in a tremendous way. Insurance companies will have to cover everyone in 2014, regardless of race, color, creed, health history, or religious preference. Also, every citizen is required to have insurance or pay a fine. The penalty will be capped for families in 2014 at $285, although the cap does rise sharply by 2016 to $2085/family. Families making less than $88,000 will get some tax credits to help them offset the cost of the insurance. Employers take a hit in 2014 also, especially the ones with more than 50 employees and no health plan. The fine is $2000/employee
6) By 2018, a 40% excise tax will be levied on the insurer on policies with premiums over $10,200 for individuals or $27,500 for family coverage (indexed for inflation).
The bottom line here is this: The IRS’s role in health care is only going to get larger. The government will attempt to pay for the reform by potential savings in Medicare and Medicaid, and future taxes and fees that are yet to be determined. But one thing still holds true: prevention is the key. If we can get people to be healthier and to see a doctor more frequently, we can hopefully prevent the chronic care that is so costly. In 2009, 7 out of 10 deaths were caused by chronic conditions such as obesity, poor diet, physical inactivity, and tobacco use. If we can help these individuals proactively, we can potentially help them live a happy and healthy life, and lower our long term health care costs as a nation along the way!
Listen below to WIn Damon and Stu review this very topic on radio 1450 AM Newburyport and WNBP.com every Tuesday morning at 8:30 AM.
Stuart Steinberg, CPA, MBA has been dealing with families and their money issues since 1988. He can be reached at 55 Pleasant Street Newburyport and at (978)864-9581 and stu@eaglerockwealth.net
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
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