The Supreme Court recently ruled that the Patient Protection and Affordable Care Act (PPACA) will stand (see the ruling here as a PDF). The main issue of contention was the requirement for all Americans to have health insurance or be penalized. The government successfully argued this was a tax and that Congress has the ability to impose taxes. The Supreme Court agreed, and PPACA is full of new taxes. It is estimated that the new law will raise over $480 billion in new taxes as it is being phased in. I have already written about the new Medicare tax that begins in 2013. There are four other new taxes that begin in 2013 that could affect you:
- Raising the medical itemized deduction from 7.5% to 10% of adjusted gross income (AGI). Currently, taxpayers with high medical expenses are allowed a deduction for those expenses that exceed 7.5% of AGI. The new provision imposes a threshold of 10% of AGI. Fortunately for seniors (age 65+) it is waived from 2013-2016.
- Capping the popular Flexible Spending Account (FSA). PPACA imposes a cap of $2500 (Indexed to inflation after 2013) on FSAs (now unlimited). Twenty four million American taxpayers currently use their FSAs to purchase medical products and services. Thousands of families with special needs children use their FSAs to pay for special needs education, which can cost over $10,000 per year per child. Under current tax rules, FSA dollars can be used to pay for this type of special needs education.
- New 2.3% excise tax on medical device manufacturers. The new tax will be levied on the total revenues of a company, regardless of whether a company generates a profit. It has the potential to raise the price of everything from pacemakers to prosthetic limbs. There is an exemption for items retailing for less than $100.
- Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D. How many employers do you think will continue to provide this benefit if it is no longer deductible?