Tax Changes With the PPACA or ObamaCare

February 15, 2011 | By: TaxCure Staff

obamacare-healthcare-tax-changesIf American taxpayers are looking for reasons to oppose President Obama’s health care bill, they don’t have to look very far. In fact, with the addition of over 20 new or increased taxes, the reasons are plentiful.

Americans are still struggling to recover from the financial fallout resulting from the recession. Despite some signs that both the economy and the American public are slowly gaining ground in this battle, the number of individuals still on shaky ground is high. As a result, many household budgets simply cannot withstand the addition of even more taxes.

Additionally, many of these tax hikes are aimed at business owners as well, many of whom will not survive with additional costs.

Here is a partial list detailing some of the new or higher taxes included in “ObamaCare”.

  • Medicine Cabinet Tax – In the past, individuals could use pre-tax dollars from a health reimbursement account, health savings account, or flexible spending account to buy over-the-counter and non-prescription medications such as aspirin, cold, and allergy medications and so on (insulin is not applicable). This is no longer an option as this change happened on January 1st, 2011.
  • Tax Increase for HSA Withdrawals – An increase from 10%-20% for any non-medical early withdrawals from a health savings account. However, the additional tax does not apply if a withdrawal is made after death disability, or if you are 65 or older. This became effective January 1st, 2011.
  • Payroll Tax Increase – Medicare portion of payroll tax will rise from 2.9% to 3.8% for individuals making $200,000 or more and for families making $250,000 or more. Therefore, your employer will continue to pay 1.45%, but for the employee, they will pay .9% more. The self-employed (with applicable income thresholds) will pay .9% more (2.9% to 3.8%). This takes effect in 2013.
  • Investment Income Surtax – Generally, there will be a 3.8% tax on investment income for households with net investment income that contributes to a taxpayer's modified adjusted gross income exceeding $200,000 (threshold amount) for singles and $250,000 for married couples. Next, investment income includes rents, dividends, capital gains, royalties, annuities, and passive income. This becomes effective for the taxable year 2013.
  • Indoor Tanning Service Tax – Customers of indoor tanning salons are currently being charged a 10% excise tax as this law went into effect on July 1st, 2010.
  • Brand Name Pharma Tax – In 2011, the pharmaceutical industry will pay a $2.5 billion annual excise tax and each company pays it according to their market share. This annual excise tax will increase until 2018 and not tax-deductible.
  • Tax or Penalty on Employers With 50 Employee or More Who Do Not Provide Coverage – Employers of 50 or more workers are required to pay a non-deductible tax of $2,000 for each full-time employee if at least one of those employees qualifies for a health tax credit and the employer does not offer health coverage. ATR notes, if an employee gets coverage through the exchange, the penalty increases by $1000. Furthermore, employers who have a 30-60 day wait period for health insurance coverage for an employee will pay a $400 tax. This takes effect in January of 2014. Many also argue that this component will incentivize employers to drop coverage.
  • Tax For Individuals Not Buying Qualifying Health Insurance – If you do not buy qualifying health insurance by 2014, you will face an annual penalty (some debate this is not a tax) of $95 or 1% of AGI (whichever is greater). This tax or penalty will rise to $325 or 2% of AGI by 2015 (whichever is greater), and tops off at 2.5% or $695 dollars by 2016. Married couples and families will face bigger penalties/taxes. There are exceptions for financial hardship and religious beliefs.
  • Cadillac Health Insurance Tax – An excise tax of 40% will be applied to high-value health plans beginning in 2018. This applies to plans costing more than $10,200 for individuals and $27,500 for families. Employees and retirees in high-risk jobs the following are increased to $11,850 and $30,950 respectively.
  • Cap on Flexible Spending Accounts – Places a cap on contributions to flexible spending accounts.  Taxpayers essentially are limited to $2,500 in contributions to their tax-free flexible spending accounts per year.
  • Removal of Prescription Drug Tax Deduction – Employers providing prescription drug coverage in conjunction with Medicare Part D to retirees will no longer be able to take a corporate tax deduction for these expenses. This takes effect starting in 2013.
  • Medical Devices Excise Tax – There will be a 2.3% excise tax on medical device manufacturers. This is effective in 2013.
  • Cannot Itemize Medical Expenses If Medical Expenses Do Not Exceed 10% of AGI – Currently, if your medical expenses are more than 7.5% of your AGI, you are allowed to deduct them. However, starting in 2013, they must be 10% or more of your AGI in order to deduct them.

These are just a sampling of the new or increased taxes to which American consumers and businesses will be subject. Because these tax hikes are spread across various industries and economic groups, few Americans will be exempt from tax increases in one or more areas of their life.

If you are not directly affected by tax hikes, you will surely know a friend, family member, business, or employer paying higher taxes. This means that all Americans will be affected in one way or another, subsequently pushing ObamaCare to the forefront of issues impacting American taxpayers.