Warren Zevon wasn’t thinking about health care when he wrote his classic 1970’s hit, “Lawyers, Guns and Money”. However, if he were around today, he might very well have had health care in mind. The votes have been cast and now we have health care reform. This has, or will, affect many Americans. What are some of the key points in this legislation?
Most U.S. Citizens and legal residents will need to have health insurance by 2014. Effective immediately, more adult children will be eligible to be covered. Now you can keep your adult child on your policy as a dependent until age 26. Sounds great doesn’t it? Just one simple question, how are they going to pay for this?
- Increase the Medicare taxes. Beginning in 2013, a single taxpayer making more than $200,000 annually and a married couple making more than $250,000 will pay 0.9% more in Medicare taxes from 1.45% to 2.35%. Additionally, these taxpayers are subject to a 3.8% Medicare tax on their net investment income which includes rents, capital gains, and annuity payments received.
- Reduce the amount eligible for deductible medical expenses. Beginning in 2013, the threshold for being able to itemize medical deductions will increase from 7.5% to 10% of adjusted gross income.
- Reduce the amount that can be put into tax-free accounts to be used for medical expenses. Beginning in 2013, the maximum amount that can be put into a health flexible spending account will be $2,500.
- Impose an excise tax on people that don’t purchase insurance. There is a formula that will calculate how much this tax will be, not to exceed $695 per uninsured adult in the household.
ACTION ITEM: Health Care Reform will affect almost everyone. Be prepared to be paying more taxes and likely have fewer choices.
Thomas F. Scanlon, CPA, CFP®