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Investment Planning |
What the New Health Care Reform Means for You
With the signing of health care legislation in March 2010, coverage is now provided to millions more Americans. To pay for the new legislation, major tax hikes are on the horizon, but none kicks in before 2013.
We have summarized the major tax implications of the legislation for individuals and small businesses below.
INDIVIDUALS
Payroll Tax
The Medicare payroll tax increases by 0.9% to 2.35% on taxpayers who earn at least $250,000 per year ($200,000 for single filers). The added tax will be levied on employees and self-employed individuals above those thresholds, beginning in 2013. The employer portion of the Medicare payroll tax is not affected.
Investment Income Tax
Also beginning in 2013, a new net investment income tax of 3.8% will be assessed on investment income (such as dividends, capital gains, rents, and passive income) for taxpayers with an Adjusted Gross Income greater than $250,000 ($200,000 for single filers). Previously, Medicare taxes had been assessed only on wages.
As financial advisors with a broad and deep understanding of tax law, JLFranklin Wealth Planning has always focused on minimizing taxable investment income and maximizing capital appreciation and long-term asset growth. We will continue to be diligent in this focus to minimize taxes and maximize overall net worth for our clients.
Nonqualified Health Savings Account Distributions
After 2010, the penalty for distributions from flex plans made for non-medical expenses prior to age 65 will increase. The penalty will rise from 10% to 20% for Health Savings Accounts (HSAs) and from 15% to 20% for Archer Medical Spending Accounts (MSAs).
Itemized Deductions for Medical Expenses
The threshold to deduct medical expenses will rise from 7.5% to 10% of AGI, beginning in 2013. Individuals over age 65, however, may continue to deduct medical expenses at 7.5% of AGI through 2016.
Flexible Spending Accounts
After 2010, employee contributions to FSAs will be capped at $2,500, limiting the amount of pre-tax dollars that can be used to purchase healthcare through this type of employee benefit. The limit will be adjusted according to the Consumer Price Index (CPI) in subsequent years.
SMALL BUSINESSES
Small Business Tax Credits
Small businesses that choose to offer insurance coverage to employees are eligible in 2010 for tax credits of up to 35% of premiums paid. Tax credits of up to 50% of premiums will become available in 2014, when the health insurance exchanges are operational. However, the full credit is available only to companies with 10 or fewer employees and average annual wages of $25,000. Companies with 25 or fewer employees and average annual wages of up to $50,000 qualify for the reduced credit.
Cafeteria Plan Changes
Beginning in 2011, a simple cafeteria plan may be created for small businesses to provide tax-free benefits to their employees. Employers who make contributions for employees under this cafeteria plan are exempt from pension plan nondiscrimination requirements that apply to highly compensated and key employees.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.