The Affordable Care Act has been highly debated for the last several years. Many high profile companies have weighed in on how the legislation will affect their businesses. But, what about the individual effects of the legislation? Starting in 2014, the majority of individuals will be required to carry some form of health insurance or pay a penalty to the IRS. Consider five key aspects of this new law.
- Penalties. Individuals who do not comply will pay a flat fee or a percentage of their income, depending on which is greater. In 2014, the flat fee is $95 per person or one percent of income. In 2015, the fee jumps to $325 per person or two percent of income, and in 2016 the fee is $695 per person or 2.5 percent of income. The penalty will be adjusted if you went without coverage for only part of the year, and no penalty would be due of you lacked coverage for less than 90 days. Individuals who do not earn enough to file federal tax returns or whose insurance costs equal more than eight percent of their income are not required to obtain coverage and will not incur penalties.
- Tax credits. To help offset the cost of insurance, most low to middle-income individuals will qualify for both state and federal subsidies. In 2014, individuals making less than $45,960 annually will qualify.
- Increased Medicare taxes. For high-income earners, investment income is now subject to the Medicare surtax. That means if you earn more than $200,000 annually, you will pay 0.9 percent on the income over $200,000 in addition to the 1.45 percent you already pay on all your wages. A portion of capital gains and dividends will be subject to a 3.8 percent tax if you make more than $200,000.
- Bigger medical expense deduction. Previously, taxpayers could deduct medical expenses up to 7.5 percent of their adjusted gross income. That cap has been increased to 10 percent.
- Greater tax penalties on health savings accounts. Withdrawing funds from your health savings account for non-qualified expenses previously would have cost you a 10 percent tax. Now you’ll be subject to a 20 percent tax in addition to the income tax you’ll pay on those funds.
Health care and the tax system have undergone historical changes over the last few years and will continue to do so over the next several years. Keeping up with the legislative changes can be overwhelming for businesses and individuals. Let Roberts Tax Advisory help. We have experience in every aspect of financial life. Contact us for a consultation.