Health care law: impacting businesses and individuals — and their taxes

On June 28, the U.S. Supreme Court generally upheld the Patient Protection and Affordable Care Act of 2010. The decision has far-reaching implications, many of which will financially impact businesses and individuals. This article provides a brief overview of the decision and its financial impact on businesses and individuals.

 

Supreme Court upholds health care law:  The main provision at issue was whether it was constitutional for the act to require that, starting in 2014, most Americans have a basic level of health insurance or pay a penalty. In a 5-4 decision, the Court found that the provision was constitutional within Congress’s power under the taxing clause.

The decision means that, generally, without congressional action, the provisions of the health care act that already have gone into effect will stand, and the provisions that are scheduled to go into effect in future years will, indeed, go into effect.

Some key provisions affecting businesses include the following:

Tax credits for certain small businesses that provide health care coverage to employees.  This provision went into effect in 2010 and is available through 2013.

 
Penalties for failing to provide health care coverage. These are scheduled to go into effect in 2014.

 
Various requirements related to the scope of health care coverage provided.

Examples include coverage of employees’ young adult children and limits on waiting periods for coverage under a group policy. Some went into effect in 2010; others are scheduled to go into effect in 2014.

 

And, here are some key provisions affecting individuals:

Higher Medicare taxes for high-income taxpayers. Starting in 2013, taxpayers with earned income in excess of certain limits will pay an additional 0.9% Medicare tax on the excess. In addition, taxpayers will pay a new, 3.8% Medicare tax on unearned income, such as interest, dividends, rents, royalties and certain capital gains, to the extent that their modified adjusted gross income exceeds certain thresholds.

Increase in medical expense deduction floor. Starting in 2013, the act raises the threshold for deducting unreimbursed medical expenses from 7.5% to 10% of adjusted gross income.

Changes to Flexible Spending Accounts (FSAs) for health care. Starting in 2011, tax-free FSA distributions could no longer be used to pay for unprescribed over-the-counter medicine. Starting in 2013, annual contributions to FSAs for medical expenses will be limited.

 

Warmest regards,

Doug

 

© 2012 Douglas Rutherford, CPA, CGMA.  All Rights Reserved.  Douglas Rutherford is a nationally recognized CPA practicing in the real estate industry. He is the founder of Rutherford, CPA & Associates, and the President and CEO of RentalSoftware.com. He is also the developer of the national leading real estate investment analysis software, the  Cash Flow Analyzer ® & Flipper’s ® software products. Doug earned his Masters of Taxation degree from Georgia State University, Atlanta, GA.

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