By now everyone is aware Congress has passed what most consider historic legislation. Only history will tell us if it was historic health care reform, a historic colossal mistake, or a historic tax increase. Part of this legislation includes a number of “revenue raisers” as well as tax increases on employers and individuals. It is this part that I will focus on today.
CCH compiled a briefing released on March 21 regarding the impact of this legislation and is the source of much of my following comments. Along with health care reform, the American public just went on a financial diet to the tune of $400 BILLION. This is the projected total of additional or increased revenue the government may receive from this bill. This is not money they are printing, but money they are collecting. And unless you are hiding under a rock (please make room - I may want to join you), taxes collected by the government have a high probability of coming out of the citizens’ pockets.
Many of the proposed new revenue sources or rate increases occur in the future, in several cases four, six, or more years into the future. Part of the House Reconciliation Act included a 40 percent excise tax on high-dollar health insurance plans which begins in 2018. Presently this tax would be imposed on group plans whose cost exceed $850 per month for individuals and $2,291 per month for family coverage, inflation adjusted annually. Thus, these plans with the new excise tax just jumped in costs significantly. Beginning in 2013, Medicare payroll taxes will be increased on those in the $200,000 and above income bracket, $250,000 for joint filers. This will be an additional 0.9 percent of tax imposed on the income exceeding these limits. Additionally, for the first time to my knowledge, a 3.8 percent Medicare tax will be imposed on investment income for individuals in these brackets as well. Investment income in this case will include interest, dividends, royalties, rents, gains from the sale of property, and passive trade or business income. For investment income which have related expenses, such as royalties, rents, and businesses, it is not clear whether this tax is on the gross receipts or the net revenue after deductions. Another excise tax will be imposed on medical device sales, but sales of eyeglasses and hearing aids will be exempt from this tax.
Revenue can be raised by also reducing allowable deductions. Beginning in 2013, only medical expenses in excess of 10 percent of AGI (before it was 7.5 percent of AGI) will be allowed as a deduction on Schedule A. However, those taxpayers 65 or older have a temporary exemption from this increased limit.
Individuals who fail to maintain minimum levels of coverage will be subject to a penalty, the greater of a percentage of their income or a flat amount. The percentage is one in 2014 and increases to two point five percent (2.5%) in 2016. The method for collection of this penalty will most likely be through the income tax system. However, this may be a problem since there are millions of Americans who do not have to file tax returns since their income is too low.
Businesses face a number of changes as a result of this bill. Annual nondeductible fees will be imposed annually on various health-related industries such as device manufacturers, health insurance providers, and others. Employers who do not provide coverage will become liable for an additional tax.
After reading of all these new taxes, fees, assessments and other revenue raising opportunities, the patient in the Patient Protection and Affordable Care Act may be the Federal government and not the American citizen.
While this bill has been signed into law, how it will impact each of us will depend upon the changes made in the coming weeks, months, and years, as well as the result of law suits forth coming by many state attorney generals who are also facing increased costs as a result of this Act.
For assistance with insurance, estate planning, and managing investments, contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.