How Does The Affordable Care Act Affect Your Taxes In 2013?
The Affordable Care Act is a hot topic in the United States. Not only is it changing the way people access and interact with health insurance companies, but it is also changing tax code. While many aspects of the Affordable Care Act do not roll out until 2014, the tax component has gone into effect, and taxpayers need to be prepared for the tax bill that accompanies the act. Here is a look at how the Affordable Care Act will affect your taxes in 2013 and beyond.
Medicare Payroll Tax
Under the Affordable Care Act, any single taxpayer who makes more than $200,000 annually or any married couple who makes more than $250,000 annually will face a Medicare payroll tax of 2.35% on earnings above those thresholds. The official name of the tax is the Medical Hospital Insurance (Part A) Tax for the Medicare Hospital Insurance (HI) Trust Fund. This tax will largely affect taxpayers in high-income households. Additionally, this tax will help keep the Medicare program running. In recent years, Medicare has faced major financial concerns, with its future largely uncertain due to budget crises.
Unearned Income Tax
Another way the Affordable Care Act is affecting the U.S. tax code is with the unearned income tax. A surtax of 3.8% will be imposed on all single taxpayers who make more than $200,000 and married couples who make more than $250,000. This tax will affect high-income households and is incurred prior to any deductions. The unearned income tax applies to a number of different investments including dividends, rent and interest.
More Limitations on Flexible Spending Accounts
Care Act also affects the way Americans save with flexible spending accounts. Flexible spending accounts are used to put money away on a pretax basis for eligible medical expenses. In 2013, there is a $2,500 limit to the amount of money you can put in a flexible spending account. This limit will increase over time to allow for living expense increases. Since out-of-pocket costs for health insurance are being managed under the Affordable Care Act, citizens will not need to save as much out of their paychecks to put into flexible spending accounts.
Cadillac Health Insurance Plan Tax
A Cadillac health insurance plan tax will be imposed in 2018 in connection with the Affordable Care Act for any taxpayer that is covered under a high-cost health insurance plan. The Cadillac health insurance plan tax is a steep 40% penalty for being enrolled in a health insurance policy that costs $10,200 or more for a single member or $27,500 or more for a family. This tax is causing many health insurance carriers to lower costs and many citizens to find a lower-cost health insurance policy. Since this tax is not scheduled to begin until 2018, Americans have ample time to select an affordable health insurance plan before the tax kicks in.
The Bottom Line
The Affordable Care Act is long reaching and affects everyone regardless of what tax bracket you fall into. The United States is taking affordable healthcare seriously, and by imposing more taxes on higher-income households, the government intends to ensure that everyone in the country has access to affordable, quality health coverage regardless of their tax bracket or financial standing.Source: www.investopedia.com