Like it or not – it’s official!
In a landmark decision, the U.S. Supreme Court upheld Obamacare, including the individual mandate, in a 5-4 decision. This means more Americans will have health insurance in future years.
It also means that taxes will go up for many.
In particular, for those earning over $200,000 ($250,000 for joint-filers) there will be a new 3.8% surtax on investment income and a 0.9% surtax on Medicare taxes.
What about those that don’t earn over $200,000? Unfortunately, you don’t escape.
There’s a host of potential areas of higher taxation for you also. Most notably for older taxpayers, less of your medical expenses will now be eligible for tax deductions.
Check out this video from Yahoo Finance that gives a clear summation of the key points of interest.
Here are some of the new taxes you’re going to have to pay for Obamacare:
- A 3.8% surtax on “investment income” when your adjusted gross income is more than $200,000 ($250,000 for joint-filers). What is “investment income?” Dividends, interest, rent, capital gains, annuities, house sales, partnerships, etc. Taxes on dividends will rise from 15% to 18.8%–if Congress extends the Bush tax cuts. If Congress does not extend the Bush tax cuts, taxes on dividends will rise from 15% to a shocking 43.8%. (WSJ)
- A 0.9% surtax on Medicare taxes for those making $200,000 or more ($250,000 joint). You already pay Medicare tax of 1.45%, and your employer pays another 1.45% for you (unless you’re self-employed, in which case you pay the whole 2.9% yourself). Next year, your Medicare bill will be 2.35%. (WSJ)
- Flexible Spending Account contributions will be capped at $2,500. Currently, there is no tax-related limit on how much you can set aside pre-tax to pay for medical expenses. Next year, there will be. If you have been socking away, say, $10,000 in your FSA to pay medical bills, you’ll have to cut that to $2,500. (ATR.org)
- The itemized-deduction hurdle for medical expenses is going up to $10,000. Right now, any medical expenses over $7,500 per year are deductible. Next year, that hurdle will be $10,000. (ATR.org)
- The penalty on non-medical withdrawals from Healthcare Savings Accounts is now 20% instead of 10%. That’s twice the penalty that applies to annuities, IRAs, and other tax-free vehicles. (ATR.org)
- A tax of 10% on indoor tanning services. This has been in place for two years, since the summer of 2010. (ATR.org)
- A 40% tax on “Cadillac Health Care Plans” starting in 2018.Those whose employers pay for all or most of comprehensive healthcare plans (costing $10,200 for an individual or $27,500 for families) will have to pay a 40% tax on the amount their employer pays. The 2018 start date is said to have been a gift to unions, which often have comprehensive plans. (ATR.org)
- A”Medicine Cabinet Tax” that eliminates the ability to pay for over-the-counter medicines from a pre-tax Flexible Spending Account. This started in January 2011. (ATR.org)
- A “penalty” tax for those who don’t buy health insurance. This will phase in from 2014-2016. It will range from $695 per person to about $4,700 per person, depending on your income. (More details here.)
- A tax on medical devices costing more than $100. Starting in 2013, medical device manufacturers will have to pay a 2.3% excise tax on medical equipment. This is expected to raise the cost of medical procedures. (Breitbart.com)
As you can see, these taxes are both “progressive” (aimed at rich people) and “regressive” (aimed at the middle class and poor people).
The big ones–the 3.8% investment income hike and the Medicare tax increase–only hit you if you’re making more than $200,000 a year. The rest hit you no matter how much you’re making.
Here’s How Much The Obamacare Penalty Tax Will Cost You
As with everything tax-related, there’s no simple answer to “How much is the Obamacare tax penalty?” But here are some key points, from FactCheck.org:
- The penalty/tax will be phased in from 2014 to 2016.
- The minimum penalty/tax in 2016 will be $695 per person and up to 3-times that per family. After 2016, these amounts will increase at the rate of inflation.
- The minimum penalty/tax per person will start at $95 in 2014 (and then increase through 2016)
- No family will ever pay more than 3X the per-person penalty, regardless of how many people are in the family.
- The $695 per-person penalty is only for those who make between $9,500 and ~$37,000 per year. If you make less than ~$9.500, you’re exempt. If you make more than ~$37,000, your penalty is calculated by the following formula…
- The penalty is 2.5% of any household income above the level at which you are required to file a tax return. That level is currently $9,500 per person and $19,000 per couple. The penalty on any income above that is 2.5%. So the penalty can get expensive quickly if you make a lot of money.
- However, the penalty can never be more than the cost of a “Bronze” heath insurance plan purchased through one of the state “exchanges” that will be created as part of Obamacare. The CBO estimates that these policies will cost $4,500-$5,000 per person and $12,000-$12,500 per family in 2016, with the costs rising thereafter.
You should note that, for most people, the “penalty tax” for those who choose not to buy health insurance will cost a lot less than the health insurance itself.
So, basically, you’re looking at penalties of approximately the following at the following income levels:
- Less than $9,500 income = $0
- $9,500 – $37,000 income = $695
- $50,000 income = $1,000
- $75,000 income = $1,600
- $100,000 income = $2,250
- $125,000 income = $2,900
- $150,000 income = $3,500
- $175,000 income = $4,100
- $200,000 income = $4,700
- Over $200,000 = The cost of a “bronze” health-insurance plan
The IRS will be in charge of collecting the penalty-tax.
Those who don’t pay will NOT be charged criminally. The IRS will NOT have the power to seize your assets, but can sue you.
The most the IRS can collect from you if it wins the suit is 2X the amount you owe.
The list of folks exempt from the penalty-tax is as follows:
- Those who make less than $9,500
- Employees whose employers only offer plans that cost more than 8% of the employee’s income
- Those with “hardships”
- Members of Indian tribes
- Members of certain religions that don’t pay Social Security tax, such as Amish, Hutterites or Mennonites
There’s no doubt that this is a decision that will be debated in public circles for some time to come.