|Health-Care Reform: Tax Changes for Individuals|
The health-care reform legislation signed
into law in 2010 contained a number of tax changes. Some of these changes took effect
immediately; others have only recently become effective. Here are some of the changes worth noting:Changes that went into effect prior to 2013
If you frequent tanning salons, you're probably well aware that the health-care reform legislation brought with it a 10 percent tax assessed on amounts paid for indoor tanning
The legislation also extended the tax benefits associated with employer health plans (i.e., the ability to exclude the value of the benefits from
income) to any children who have not reached age
27 by the end of the year.
In addition, the legislation made changes to flexible spending arrangements (FSAs), health
reimbursement arrangements (HRAs), health savings accounts (HSAs), and Archer MSAs: over-the-counter medications
(except for insulin and medications that are prescribed by a physician) are no
longer considered qualified medical expenses for purposes of reimbursement
and tax-free distributions. And, the additional tax that
applies to HSA and Archer MSA distributions not made for qualifying
expenses increased to 20 percent.Changes that went into effect in 2013
Do you typically itemize your deductions on Schedule A? Starting in 2013, unreimbursed
medical expenses were deductible on Schedule A only to the extent that they
exceeded 10 percent of adjusted gross income (AGI), instead of the 7.5 percent threshold that
applied in prior years. Until 2016, however, if you or your spouse turned age 65 before the
end of the taxable year, the 7.5 percent AGI threshold continued to apply.
Beginning in 2017, the 10 percent AGI threshold was to apply to individuals who had
reached age 65 as well. However, for 2017 and 2018, the threshold has now been reduced to 7.5 percent for everyone; it increases to 10 percent in 2019.
Also starting in 2013, high-income individuals were subject to two new Medicare-related taxes. Those with wages over $200,000 (married couples filing jointly with wages over $250,000) are subject
to an additional 0.9 percent hospital insurance (Medicare) payroll tax. A 3.8 percent
Medicare contribution tax is also imposed on the unearned income of
individuals with modified adjusted gross income (MAGI) over $200,000, or married couples
filing jointly with MAGI over $250,000.
Health FSAs that are part of a
cafeteria plan are capped at a $2,650 (in 2018, $2,600 in 2017) reimbursement limit.Changes effective in 2014
This is the year of the carrot and the stick. A premium
assistance tax credit is available to help eligible individuals purchase health-care
insurance through the Exchange Marketplace. Who qualifies? Individuals with household income between
100 percent and 400 percent of the federal poverty level will qualify, with the exact amount of the credit
based on income level (for a family of four, that means income from $24,300 to $97,200 in 2017, $24,250 to $97,000 in 2016). Generally, individuals who are offered coverage
through an employer health plan don't qualify for the credit unless the
employer health plan doesn't cover an adequate share of benefits (60 percent), or it's
considered "unaffordable" (the employee portion of the premium is 9.5 percent or more of the
employee's household income).
And then there's the stick. Beginning in 2014, if you're a U.S. citizen or legal resident, you'll generally be required to have adequate health-care coverage. If you don't, you'll face a penalty tax unless you qualify for an exemption. For 2014, the tax was equal to the greater of 1 percent of the amount of your household income that exceeds a specific amount (generally, the standard deduction plus personal exemption amounts you're entitled to for the year) or $95 per uninsured adult (half that for uninsured family members under age 18), with a maximum household penalty of $285. In 2015, the percentage rate increased to 2 percent, the dollar amount per uninsured adult increased to $325, and the maximum household penalty increased to $975. In 2016 and 2017, the percentage rate is 2.5 percent, the dollar amount per uninsured adult is $695, and the maximum household penalty is $2,085. This health insurance individual mandate has been eliminated for months beginning after December 31, 2018.