More About The Affordable Care Act And Your Taxes
In addition to the penalties required by the Affordable Care Act, the law made other tax changes that could affect you:
- Annual contributions to flexible spending accounts are limited to $2,500 (indexed for inflation).
- The 7.5% adjusted gross income threshold for deducting unreimbursed medical expenses is now 10% for those under age 65. Those 65 and older can use the 7.5% threshold through 2016.
- The additional tax on nonqualified distributions from health savings accounts (HSAs) is 20%, an increase from the previous 10% penalty.
- The payroll Medicare tax increases from 1.45% of compensation and self-employment income to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. This rate increase applies only to the employee portion, not to the employer portion of compensation or self employment income.
- A 3.8% Medicare surtax is imposed on unearned income (examples: interest, dividends, most capital gains) for single taxpayers with income over $200,000 and married couples with income over $250,000
- Pre Tax Reimbursement: One unintended consequence of the Affordable Care Act is explained in an IRS Notice issued in September 2013. Effective January 1, 2014, employers may no longer reimburse employees for their individual health insurance policies or pay the premiums directly to the insurance company on a pre-tax basis. Employers that continue to pay employee’s premiums or reimburse their payment must include these amounts in the employee’s taxable wages. Only if the employer offers a group medical insurance plan can pre-tax dollars be used for health insurance premiums.
Posted Nov 21, 2014/wittenbergcpa.com