The Affordable Care Act has been given the go-ahead by the Supreme Court on Thursday. This act requires U.S. citizens to obtain health insurance or pay a tax. The act will not be instituted until 2014, however, wealthy taxpayers may start feeling the burden in 2013 when they start paying a higher Medicare tax to help cover costs. If you do not have health insurance by 2014, expect to be paying the IRS at a higher rate.
“The government can’t force you to buy insurance, but it can tax you for not buying it,” said John Roth, senior tax analyst with CCH Group.
When filing your income tax returns in 2014, you are most likely going to see a line asking for proof of health insurance. If you fail to properly prove your coverage, the government has the power to penalize you at a certain extent. The IRS cannot put a lien on your house, but they can take away some of your refund or credit. For single people, the penalties start at $95 or 1% of your income (whatever is higher) and by 2016, it rises to $695. For families, the penalties have not been set but will be higher than those filing as single.
The idea of the Affordable Care Act is to encourage people to get health insurance. This will ensure that when accidents or emergencies occur, uncovered costs on the system will not occur. It will also enable low-income individuals and families to be covered by wealthier individuals and families. To compensate for the lower income bracket receiving healthcare, individuals and families who make $200,000 or $250,000 or more, respectively, will have to pay an extra 0.9% on earned income and 3.8% Medicare tax on investment gains (interest, dividends, capital gains, rental income, and annuity income).
“In the case of a married couple with a joint income of $225,000 and $25,000 in capital gains, there would be no extra 3.8 percent tax. But if they had $35,000 in capital gains, their $260,000 in income would meet the threshold and $10,000 would be subject to the extra tax,” said Tim Steffen, Robert W. Baird & Co.’s director of financial planning.
Just one final note – starting in 2013, in order to deduct medical costs on your income tax return, they must amount to 10% of your adjusted gross income. This is fairly difficult, so if you were planning on getting Lasik eye surgery or laser hair removal, think about doing it in 2012 where the deduction is 7.5% of your adjusted gross income.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.