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From time to time, we like to share our thoughts on
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TAX HIGHLIGHTS OF THE PATIENT PROTECTION AND AFFORDABLE CARE ACT July 14, 2010 With the fervor having subsided and the rhetoric a thing of the past
it's a good time to take a look at the specific provisions of Obama's health care legislation. Here's a rundown: TAX REDUCTIONS: - An
"eligible small employer" may claim a tax credit for premiums paid toward health care coverage for its employees
beginning in 2010. The credit is available through and including 2013.
- The
adoption tax credit increases to $13,170 and becomes refundable (meaning a $0 taxpayer can receive a refund). The
adoption assistance exclusion increases by $1,000 for 2010 and 2011.
- Children who have not reached age 27 as of the end of the tax year qualify
for the general exclusion for health insurance beginning in 2010. The coverage applies to children
of employees or self-employed individuals.
- A
health insurance premium assistance credit for taxpayers with household incomes between 100% and 400% of the federal poverty
line is available beginning in 2014. The credit is refundable so like the adoption credit a $0 taxpayer can receive
a refund.
TAX INCREASES / REVENUE RAISERS: - Businesses that pay $600 or more in any year to providers of property and services will be required
beginning in 2010 to file an information report with the IRS.
- Penalties
for underpayment of taxes arising from transactions lacking economic substance will be assessed at 20% (disclosed transactions)
and 40% (undisclosed transactions) beginning in 2010. In determining whether a transaction has economic substance
Treasury/IRS looks for a meaningful change in the taxpayer's economic position other than a change
in his/her tax liability.
- Indoor tanning services will be subject to
a 10% excise tax effective 7/1/10. The tax is assessed against the individual receiving the
tanning services but collected and remitted by the person receiving payment for the services.
- The penalty for non-qualified distributions from Health Savings Accounts and Archer Medical Savings
Accounts increases to 20% beginning in 2011.
- Flexible spending accounts
and health savings accounts must use the definition of medical expense for itemized deduction purposes beginning in 2011.
As a result OTC medications will no longer be available for reimbursement.
- The
Medicare tax on employees is increased by 0.9% on earned income in excess of $200,000/$250,000 for individuals and joint
filers respectively beginning in 2013. This brings the rate up from 1.45% to 2.35%.
- A new Medicare tax of 3.8% is introduced in 2013 for unearned income (e.g.
investment income) for Adjusted Gross Income ("AGI") exceeding $200,000/$250,000 for individuals
and joint filers respectively.
- Itemized medical
expenses will need to exceed 10% of AGI (up from the current 7.5%) beginning in 2013. As the current Alternative
Minimum Tax ("AMT") threshold is 10% this change effectively removes the AMT adjustment. Taxpayers and their
spouses age 65 and older will not be subject to the new 10% threshold until 2017.
- Flexible
spending accounts will be capped at $2,500/yr after 2013. The cap will be indexed for inflation.
- A 40% surtax on high-cost health insurance (the so-called "Cadillac Health Plans") will
apply beginning in 2018. The standard for high-cost health insurance is an annual premium in
excess of an inflation-adjusted $10,200/$27,500 for individual and family plans respectively.
ANALYSIS: The
legislation is the boldest attempt at health care reform that we've seen in years. Its social
aim is admirable. Unfortunately the massive expansion of Big Government does nothing to address
the spiraling costs of health care and provides little incentive for behavioral changes that might have a positive
impact on the physical health of Americans. Further it makes no attempt to curb entitlements
- the unfunded liabilities that we "gift" to future generations. * * * * *
We’ll write to you again soon. In the interim, please share your thoughts about this or any of our prior posts. We love hearing from you! (05/19/10) These Munis are Junk Bonds in Disguise (01/29/10)
Lessons from a Lost Decade (10/30/09) The Case for Rising Interest Rates
(09/23/09)
Our Misguided Love of Prices (05/04/09) Viva
Socialism - and Sayonara Freedom
(02/24/09) Stress Testing the US Banking System
(02/16/09) The Un-Stimulating Stimulus
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(10/16/08) EOY Economic and Investment Outlook
(08/01/08) The American Housing Rescue and Foreclosure Act
of 2008
(03/12/08) Does Bernanke Read Our Blog?
(03/07/08) Why The Fed Can't "Cut" It
(12/31/07)
The Coming Recession?
(10/26/07) Investment Lessons Learned
(09/26/07) All Real Estate is Not Created Equal
(08/14/07)
It's Tough Being a Kid
(07/10/07) It's Good to be Bad
(05/29/07) Mid-Year Q&A
(03/15/07) Alphabet Soup:
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(02/09/07) Is Greed a Bad Thing?
(12/28/06) 2007 Economic/Investment Outlook
(11/24/06) Year-End Tax Planning
(10/12/06) IRA DOs and DON’Ts
(09/05/06) The Pension Protection Act of
2006
(08/22/06) Roth IRA Conversions and TIPRA – Be Careful What You Wish For
(08/02/06) $100 Oil's Winners
& Losers
(07/17/06) Principal-Protection Funds: Having Your Cake and Eating it Too?
(06/28/06) It's All About
'The O'
(05/18/06) The Tax Increase and Reconciliation Act of 2006
(05/01/06) What the Bond Market is Telling Us
(02/24/06) Medical Care for the Elderly - New Rules Impact Planning
(02/14/06) Love Yourself on Valentine's Day - We
Do!
(01/17/06) Fool's Gold
(12/14/05) Is The Fed Finished Raising Rates?
(11/22/05) Is Real Estate Right for
your IRA?
(10/06/05) Fall Sector Watch
(09/29/05) New Proposed Rules for Deferred Compensation
(08/19/05) The
Energy Tax Incentives Act of 2005
(07/21/05) U.S. Impact of Chinese Yuan Revaluation
(07/19/05) Life-Cycle Funds
(06/20/05) The Roth 401(k)
(05/12/05) Tough Love: Life is a Choice!
(04/11/05) Investor Interest in Hedge Funds
is Misguided
(03/29/05) An Interview with Jeeves
(02/21/05) Is It Time to Junk Your "Junk" Bonds?
(02/14/05)
A Financial Battle of the Sexes
(01/17/05) The Impact of Corporate Dollars Coming Home
(01/03/05) The Catcher in
the Rye: Can George W. Bush be Holden Caulfield?
(12/02/04) How to Benefit from the Falling Dollar
(11/02/04) Checking
Your Credit Report is Easier than Ever
(10/18/04) Bush vs Kerry – Who We’re Voting For
(10/13/04) Bush
vs Kerry – Economic Winners and Losers
(10/07/04) Interest Rates Send Mixed Signals to Investors
(09/22/04)
Baby Boomers Neglect Financial Planning
(06/05/03) 2003: A Look Back - A Look Ahead
(07/27/02) Investing in the
Financial Markets for the 'Right' Reason
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