In 2013 for those who itemize; on Schedule A will find the 7.5%-of-AGI floor for deducting medical expenses will increase to 10% for filers under age 65. This increase will not apply to those 65 and over until 2017.
Contributions to the health flexible spending accounts will be capped at $2,500 a year.
The federally-subsidized part of retiree drug plan costs will be nondeductible on tax returns. And a 2.3% excise tax on medical devices takes effect. Items are commonly sold at retail, such as glasses, contact lenses and hearing aids, are exempt from the tax.
In 2014, individuals who remain uninsured will owe a penalty tax equal to the larger of $95 or 1% of income above the filing threshold; this is were everyone finds out the government does not believe them to be as poor as they believe themselves to be. It is the income level that triggers the requirement to file.
For families, the penalty will be capped at $285 for 2014 only. The tax then increases sharply for the next two years. In 2016, the top fine will be $2,085. Lower- and middle-incomers will get an income tax credit to help them afford coverage. Again this will also probably be a surprise to many, when they find the government does not believe them to be a poor as they believe themselves to be.
Businesses with 50 or more full-employees that have no health plan will owe an excise tax if even one employee gets the credit. The tax is $2,000 times the number of employees, with a 30-employee offset. I expect that employers on the bubble may make changes downward to staffing, to give them flexibility in their decision making.
The taxes will also due if an employer offers health insurance coverage that is deemed substandard or is too costly for employees. If any employee buys coverage through an exchange, the tax rate rises to $3,000. Employers cannot deduct the tax.
So you can see where the owners will want control, I have a client that has medical costs that are $3,000 per month for family coverage and $2,000 for husband and spouse coverage. It is taken to market every year, and no major savings are available without significantly reducing benefits coverage, they will be subject to the penalties due to cost. These are not the “Cadillac” plans described next.
In 2018, self-insurers with “Cadillac” plans get hit with a 40% tax on the cost of plans in excess of $10,200 for individual coverage and $27,500 for family plans in most cases. Dental and vision coverage are excluded. These 2018 thresholds will rise if medical inflation between 2010 and 2018 tops 55%.
This is what happens when you let the IRS have a role in your health care decisions. The IRS’s role will only get larger and I have been sent an e-mail from a client stating that the IRS will be hiring 16,500 more agents to handle the aspects of health care within your taxes. I have not verified this number.
Now is the time to plan for the future.