ObamaCare: What’s in Stock for the Taxpayer? (Part Four)

By Dr. Peter Ikre

The 2nd Open Enrolment Period (OEP) of the Affordable Care Act (ACT) aka Obamacare kicked off as earlier publicized on the 15th of November, 2014. This phase of the enrollment exercise is expected to end on the 15th of February, 2015. Aside from the fact that Obamacare is here to stay, it is fast-becoming an annual event just like the Medicare program before it. Medicare is a federal government-sponsored health insurance program for people 65 years of age and over (the elderly), the blind, individuals with end stage renal disease (ESRD), and persons with disabilities irrespective of age. The Medicare enrollment exercise is a yearly event spanning from October 15 to December 7. The good news is that Medicare enrollees can participate in Obamacare so long they satisfy stipulated requirements as they apply to other sections of the general population. Although Medicare is a fantastic health insurance program, it does not offer comprehensive coverage in its original form in many cases. In essence, Obamacare offers Medicare participants particularly low-income individuals the opportunity to become dual eligible for both Medicare and Medicaid. In doing so, seniors, representing 13.7% of the U. S. population (Current Population Reports, 2014), are guaranteed access to quality care in their golden years. As part of efforts to improve Obamacare participation rate in the immigrant communities, I am offering some helpful tips to ensure a stress-free registration exercise for new participants and for those wishing to make adjustments to existing health insurance plans. In addition, I am using the occasion to reiterate some of the tax implications of the Obamacare program.
Undoubtedly, a program of such magnitude requires massive infusion of funds to finance provision of health care to tens of millions of uninsured individuals in the country. Although the government was initially silent about the tax ramifications of such a venture, economic pundits maintained that implementation of Obamacare was impossible without imposition of new taxes. According to the Americans for Tax Reform (2012), the Affordable Care Act contains at least 20 new or higher taxes on American families and small businesses. Based on figures released by the Congressional Budget Office (CBO), a total of over $500 billion in tax hikes is expected over the next ten years. I have compiled a list of new tax increases likely to impact individuals and small businesses in the near-term: a) surtax on investment income, b) Increase in Medicare Payroll Tax, c) Individual Mandate Excise Tax and Employer Mandate Tax, d) Excise Tax on Comprehensive Health Insurance Plans, e) High Medical Bills Tax, f) Flexible Spending Accounts Cap- aka “Special Needs Kids Tax”, g) elimination of tax deduction for employer-provided retirement Rx drug coverage, and h) HAS withdrawal tax increase.
Households with incomes of at least $250,000 ($200,000 for singles) now experience a 3.8% tax increase on investment income pushing the capital gains and dividend rates to current maximum of 23.8% and 43.4% respectively. However, individuals at the bottom of the economic ladder have rates largely unchanged at 15%. With respect to the Individual Mandate Excise Tax, the ACA (Obamacare) requires every resident to purchase a qualifying health insurance plan or pay a levy (penalty) according to the higher of the following1: For 2014
1 Adult
2014 1% of Adjusted Gross Income (AGI) or $95, whichever is higher
2 Adults 1% of AGI or $190
3+ Adults 1% of AGI or $285

For 2015
1 Adult 2% of AGI or $325 2 Adults 2% of AGI or $650 3Adults 2% of AGI or $975

For 2016 and beyond 1 Adult 2.5% of AGI or $695 2 Adults 2.5% of AGI or $1390
3+ Adults 2.5% of AGI or $2085
Although the health reform law mandates every individual in the country to have health insurance from employer, government, or buy one from the health care marketplace, some people are exempted from the exercise due to several factors sometimes beyond their control. The following groups of individuals are exempted from the Individual Mandate provision of Obamacare: a) religious objectors, b) undocumented immigrants, c) prisoners, d) Native American Indians, e) earners living below the poverty line, and f) hardship cases. Aside from the Individual Mandate, Obamacare is restricting deductibility of medical expenses and usability of the Flexible Spending Account (FSA). In the past, one could deduct qualified medical expenses exceeding 7.5% of adjusted gross income (AGI). With Obamacare, the threshold has been raised to 10% of AGI. In other words, if your medical expenses are less than 10% of AGI, please don’t bother your tax preparer with those expenses in the forthcoming 2015 tax season. The good news is that the 10% limit does not apply to our seniors, those 65 years and over (grace period from 2013-2016). In the case of the FSA, the new health care law imposes a limit of $2500. The amount used to be unlimited prior to passage of the ACA. The restriction is likely to impact spending flexibility of the parents of special needs kids many of whom use such accounts to pay for special needs education. In a similar vein, Obamacare has dealt a severe blow to fans of Health Savings Accounts (HSA). With effect from 2011, non-medical early withdrawals from an HSA triggers an additional 10% increase in taxes or penalties. In other words, the new levy for non-medically related early withdrawals is up from 10% to 20%. This puts the HSA at a disadvantage compared to other tax-deferred/advantaged accounts such as the Individual Retirement Accounts (IRA) where penalty for early withdrawal remains at 10%.
Before I conclude this aspect of the series on Obamacare tax implications for individuals and small businesses, it is worth noting that the Affordable Care Act mandates reporting of insurance coverage costs under an employer-sponsored group health plan on an employee’s Form W-2 (Wage and Tax Statement) in Box 12, using the code DD. The requirement is for information purposes and only meant to indicate the value of health care benefits to employees. It is excludible from an employee’s income and not taxable (Internal Revenue Service, 2014). Here are some helpful tips to keep in mind concerning the 2nd Open Enrollment Program: a) if you have health insurance already and nothing has changed in terms of your situation, you don’t have to do anything; b) if you don’t have health insurance through your job or government-sponsored health plans, you need to buy one from the health care market place; c) purchasing health insurance from the marketplace may qualify you for zero monthly premium payment or tax credits to reduce out-of-pocket premium payments; and d) if you do none of the above, you risk being penalized and subject to the shared responsibility payment when filing your 2015 federal tax returns. Finally, I have a team of well-seasoned certified application counselors (CACs) to assist you with enrollment into
the program.

1 Courtesy of Americans for Tax Reform (2012)

Dr. Peter Ikre can be reached on Tel: 9083421160; 9086884778 ext. 106; Fax: 9086887178

Posted by on Dec 16 2014. Filed under Community News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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