How will the new Health Care Reform affect you, your family and your pets?
By Joshua Waldron, CPA
Greenstein, Rogoff, Olsen & Co.
The long debate over health care reform has been placed at the forefront of each of our lives when in March 2010 President Obama signed into law two bills that would expand health care coverage to a reported 32 million uninsured Americans. Whether or not you are one of the 32 million, these bills do affect you.
Although the majority of this article is how this will affect your insurance and cost of coverage, there are major tax planning opportunities that you should be aware of that could substantially reduce your tax situation.
- Planning to take advantage before the 3.8% rise in tax rates on interest, dividends, capital gains and other types of passive income goes into effect.
Below is a timeline and summary of some of the key provisions of the health care reform legislation potentially affecting you.
- Certain small businesses (less than 25 employees) that provide health coverage to their employees will be eligible for a tax credit based on the number of employees and average annual wages paid to those employees.
- Individuals who were uninsured for at least six months and who have a pre-existing condition will be able to obtain subsidized coverage. Additionally, insurance providers will no longer be able to cap your lifetime health benefits and are restricted in their annual coverage limits.
- A 10% tax is imposed on amounts paid for indoor tanning services. Whether this will assist in the tanning process is a matter of personal taste.
- Adoption tax credit is increased by $1,000 and is now refundable
- Children cannot be excluded from receiving health insurance from providers due to pre-existing conditions
- The age children will be able to use their parents health coverage was raised to 26 from the previous 19 or college graduation
- Individuals will be prohibited from using funds from health savings accounts (HSA), health care flexible accounts (FSA), or health reimbursement arrangements for the cost of over- the-counter medications that are not prescribed by a physician.
- Employers will be required to report the value of the health benefits provided to employees on the 2011 Form W-2, issued in January of 2012. However, the benefits are still nontaxable.
- The penalty on non-medical use of health savings account funds will double
- A voluntary federal long term care program will be established which you may participate in.
- At each level, hospital, physician, and Medicare, programs and controls are to be implemented that will reduce readmission rates, improve quality, and encourage more accountability among healthcare professionals. This will require new annual reporting by group health plans and individual insurers.
- Higher income tax payers (>$200,000 for singles, >$250,000 for joint filers) will see an increase in their Medicare payroll taxes from the current 1.45% to 2.35%.
- A new 3.8% on passive income (interest, dividends, capital gains & income from partnerships which you don't participate) for these same higher income individuals. increasing the highest marginal tax rate to 43.4%, this is 8.4% higher than 2010
- The deductibility floor on medical expenses will be increased from 7.5% of AGI (adjusted gross income) to 10%.
- All U.S. citizens and legal residents (except certain select individuals) will be required to maintain acceptable health care coverage or pay an annual penalty of approximately $695
- Employers with 50 or more employees must offer coverage to their employees or potentially pay an annual penalty starting at $2,000
- Employers with 200 or more employees must auto-enroll new full-time employees (30 or more hours per week)
- State-level health insurance exchanges will open allowing individuals and smaller organizations to shop around for cheaper health insurance
- Health plans will be prohibited from imposing annual limits on coverage
- Health insurance exchanges open to larger employers
- An excise tax of 40% will be imposed on insurance providers that offer plans having an aggregate annual cost of $10,200 for individuals or $27,500 for families.
Although there is nothing in the legislation for health care reform for your pets, the House proposed legislation (The HAPPY Act) may allow some pet owners to receive up to a $3,500 deduction for pet care. At the time of release of this article, it is not likely to pass. It is refreshing that some legislators do consider that the health of the pet is directly linked to the pet owner.
We at Greenstein, Rogoff, Olsen and Company are committed to providing you with the most current and updated information on the health care reform legislation that may affect you and your family. Please feel free to contact us to discuss any questions or tax planning opportunities.