New taxes from Patient Protection and Affordable Care Act (PPACA), aka “Obamacare”, Post 2

This is the 2nd post in a series of posts concerning new taxes improsed by the Patient Protection and Afforable Care Act (PPACA).  The 1st post discussed taxes that are already in place and this post will discuss four new taxes that will be put into place in 2013 (next year).

The first of these taxes will increase the Medicare tax individuals making more than $200,000 in wages ($250,000 married filing joint) pay.  Any wages paid during the year to a person that is above the aforementioned wage limit will be subject to an additional Medicare tax of .9%.  So a single person who is paid $250,000 in wages in 2013 will pay additional Medicare taxes of $450.  If a married couple files jointly in 2013 and they earn $350,000 in wages they will pay an additional $900 in Medicare taxes.

The second tax is another Medicare tax on high-income taxpayers.  It is a tax on investment income (interest, dividends, annuities, royalties, rents, passive activity income, and capital gains).  Investment income does not include distributions from qualified pension plans, non qualified deferred compensation, or municipal bond interest.  This tax only effects single filers who have a modified adjusted gross income (MAGI) greater than $200,000 (married filing jointly $250,000).  Effected taxpayers must pay a 3.8% Medicare tax on the LOWER of the taxpayers net investment income or the amount that the taxpayers MAGI is above the aforementioned threshold.  For example if a single taxpayer has a MAGI of $225,000 and has a total of $50,000 of investment income they will pay an additional 3.8% Medicare tax on $25,000 or $950 in additional Medicare taxes.

The third of these new taxes will effect those people who utilize a Flexible Savings Account (FSA) to pay some of their health care costs with tax free dollars.  The PPACA caps contributions to FSA accounts to a maximum of $2,500 per year.

The fourth of these new “Obamacare” taxes effects itemized deductions.  Under current law you can only itemize medical expenses as an itemized deduction that exceed 7.5% of your adjusted gross income (AGI).  Starting next year the limit increases to 10%.  Note that if the taxpayer or spouse is 65 years old or older in 2013 – 2016 they can still use the previous limit of 7.5%.

Mike Sylvester, CPA

 

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