New taxes from Patient Protection and Affordable Care Act (PPACA), aka “Obamacare”, Post 1

In 2010 Congress passed the Patient Protection and Affordable Care Act (PPACA).  This law is frequently referred to as “Obamacare.”  This law makes major changes to the health care system in the United States.  PPACA is a major piece of legislation.  It is very complicated and some portions of it will likely change depending on the political landscape.  The law phases in from 2010 to 2018.  This post  (and subsequent posts) will discuss changes to the tax laws only.  This post will discuss the three taxes already in place that will effect some of SBS CPA Group’s clients.

The PPACA imposed a 10% tax on indoor tanning services in 2010.  This was imposed for two reasons.  First those who wrote the PPACA wanted to discourage indoor tanning for health reasons.  Second the PPACA is very expensive and revenue is required to offset the costs.  The Congressional Joint Committee on Taxation estimated the indoor tanning tax would raise 100 million dollars in the first half of 2011.  In the first half of 2011 the IRS only collected 36.6 million dollars in tanning taxes.   This is a permanent tax that is already in place.  Businesses report this tax on Form 720 once per quarter.

The second tax is often called the “Medicine Cabinet Tax.”  Pre-tax dollars in health savings accounts (HSA’s), flexible spending accounts (FSA), and health reimbursement accounts (HRA’s) can no longer be used to purchase non-prescription, over-the-counter medicines other than insulin unless they are prescribed by a Doctor.  Instead these items must be purchased with after-tax dollars.

The third tax involves money withdrawn from a Health Savings Account (HSA) that is not used on qualified medical expenses.  Prior to the passage of the PPACA any withdraws that were not used to pay for qualified medical expense were taxed as regular income and an additional 10% tax was imposed to “discourage” the early withdraw.  The PPACA increases the penalty from 10% to 20%.

Mike Sylvester, CPA/ABV “accredited in business valuation”



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