As the US House of Representatives prepares to vote on the repeal of Obamacare, I thought it may be important to review the many tax increases Americans will face, unless Obamacare is changed or repealed. The good folks at atr.org have put together a comprehensive list (see below) that is worth reading.
We need healthcare reform, and many of the recent changes, such as mandatory 100% preventive benefits, are quite beneficial. But at the same time, the country can’t afford all of the proposed mandates, and unless changes are made, we may face a very gloomy scenario. Perhaps increased utilization of Health Savings Accounts (HSAs) may be where we should be focusing most of our attention.
Another concept to consider is adding additional funding to State Risk Pools that help persons that can not qualify for a policy. Along with Open Enrollment, the Risk Pools are sometimes the lifeline for folks with serious health conditions. And in many states, they have provided guaranteed medical coverage to persons that could not qualify for an underwritten policy.
Here Are Affordable Care Act Legislation Taxes!
Individual Mandate Excise Tax (Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following
|1 Adult||2 Adults||3+ Adults|
|2014||1% AGI/$95||1% AGI/$190||1% AGI/$285|
|2015||2% AGI/$325||2% AGI/$650||2% AGI/$975|
|2016 +||2.5% AGI/$695||2.5% AGI/$1390||2.5% AGI/$2085|
Exemptions will be given for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases (determined by HHS). Of course, enforcing this new penalty may be difficult since many persons are not aware of it and the IRS has never had to impose the tax.
Employer Mandate Tax (Jan 2014): If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees. This provision applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer). Yes, that is confusing.
Combined score of individual and employer mandate tax penalty: $65 billion/10 years
Surtax on Investment Income ($123 billion/Jan. 2013): This increase involves the creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single). This would result in the following top tax rates on investment income. NOTE: Do you think this will encourage high-income earners to invest more? Of course not.
|2013+ (current law)||23.8%||43.4%||43.4%|
|2013+ (Obama budget)||23.8%||23.8%||43.4%|
*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income. It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans. The 3.8% surtax does not apply to non-resident aliens.
Excise Tax on Comprehensive Health Insurance Plans($32 bil/Jan 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans ($10,200 single/$27,500 family). For early retirees and high-risk professions exists a higher threshold ($11,500 single/$29,450 family). CPI +1 percentage point indexed. If you have one of these plans, you won’t be happy. We expect this piece of the legislation to be altered before it is implemented.
Hike in Medicare Payroll Tax($86.8 bil/Jan 2013): Current law and changes:
|All Remaining Wages
|Obamacare Tax Hike||1.45%/1.45%
Medicine Cabinet Tax($5 bil/Jan 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin). This will negatively impact about 40%-60% of all households that utilize HSAs.
HSA Withdrawal Tax Hike($1.4 bil/Jan 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent. This hurts anyone with an HSA and is unnecessary.
Flexible Spending Account Cap – aka“Special Needs Kids Tax”($13 bil/Jan 2013): Imposes cap of $2500 (Indexed to inflation after 2013) on FSAs (now unlimited). . There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.
Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. But the proposed cap should be drastically increased.
Tax on Medical Device Manufacturers($20 bil/Jan 2013): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This law imposes a new 2.3% excise tax. Exemptions include items retailing for less than $100. We also feel this tax is unjustified and simply an additional option to pass the cost of the legislation onto consumers.
Raise “Haircut” for Medical Itemized Deduction from 7.5% to 10% of AGI($15.2 bil/Jan 2013): Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). The new provision imposes a threshold of 10 percent of AGI; it is waived for 65+ taxpayers in 2013-2016 only. Thus, high-income earners with significant medical expenses get penalized.
Tax on Indoor Tanning Services($2.7 billion/July 1, 2010): New 10 percent excise tax on Americans using indoor tanning salons. Obviously, bad news if you own a tanning salon.
Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D($4.5 bil/Jan 2013)
Blue Cross/Blue Shield Tax Hike($0.4 bil/Jan 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services
Excise Tax on Charitable Hospitals(Min$/immediate): $50,000 per hospital if they fail to meet new “community health assessment needs,” “financial assistance,” and “billing and collection” rules set by HHS.
Tax on Innovator Drug Companies($22.2 bil/Jan 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year.
Tax on Health Insurers($60.1 bil/Jan 2014): Annual tax on the industry imposed relative to health insurance premiums collected that year. The stipulation phases in gradually until 2018, and is fully-imposed on firms with $50 million in profits.
$500,000 Annual Executive Compensation Limit for Health Insurance Executives($0.6 bil/Jan 2013)
Employer Reporting of Insurance on W-2(Min$/Jan 2011): Preamble to taxing health benefits on individual tax returns.
Corporate 1099-MISC Information Reporting($17.1 bil/Jan 2012): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers.
“Black liquor” tax hike(Tax hike of $23.6 billion). This is a tax increase on a type of bio-fuel.
Codification of the “economic substance doctrine”(Tax hike of $4.5 billion). This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed.