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New ObamaCare Taxes

Posted by taxguru on October 4, 2012

I was just reviewing the latest update to the very useful Tax Corresponder program from CFS and noticed this handy recap of upcoming new taxes that will be coming into play soon.

The U.S. Supreme Court ruled on June 28, 2012, that President Obama’s Health Care Act is constitutional and that the government can and will require individuals to purchase health insurance. This provision takes effect January 1, 2014, and there are other provisions that phase in January 1, 2013.

The health insurance provision means that beginning January 2014, non-exempt U.S. citizens and legal residents who are required to file a tax return are required to have health insurance. Individuals who fail to maintain minimum essential coverage are subject to the following penalty(s) per uninsured household adult: 2014 – the greater of $95 or a 1% penalty of the amount of household income that is over the threshold amount of income required for income tax return filing; 2015 – $325 or 2% penalty; and 2016 and after $695 (indexed for inflation) or 2.5% penalty.

There are three additional and potentially expensive provisions to this law that take effect in 2013:

1. If you are single and your compensation (salary, wages, self-employment income) is $200,000 or more ($250,000 for married couples), you will pay an additional 0.9% tax on your earned income. What can you do about this? Consider accelerating a bonus or other income that is scheduled to be paid to you in 2013 by rescheduling it to be paid in 2012.

2. There is a 3.8% tax on investment income (interest, dividends, net rental income, capital gains, etc.) for individuals, estates, and trusts. The tax is 3.8% of the lesser of your investment income or your adjusted gross income that is over the threshold amounts of $200,000 for singles and $250,000 for married couples. For estates and trusts, the tax is 3.8% of undistributed net investment income or the excess of AGI over the dollar amount at which the highest estate and trust income tax bracket begins. For 2012, that estate/trust bracket begins at $11,650. What can you do about this provision? Consider accelerating this type of income from 2013 to 2012. If you are managing an estate or trust, consider distributing net investment income to the beneficiary(s) each year.

3. You probably recall that if you itemize your deductions, you can deduct any medical expenses that exceed 7.5% of your adjusted gross income. This changes with the Health Care Act because the medical deduction threshold will increase from the current 7.5% of your adjusted gross income to 10% for taxpayers under the age of 65. In 2017 it will be 10% for all taxpayers regardless of age. To avoid the increased AGI threshold, try to lump the payment of medical expenses into 2012 instead of paying them in 2013.



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