Taxing Time for All – Decoding your share of the Obamacare tax laws

February 2013 View more


With the fallout from the “fiscal cliff” still balancing on the precipice as we go to print, the next most-controversial personal money issue is the Patient Protection and Affordable Care Act known as “Obamacare”. This might be one of the largest new tax bills (others call it a “mandate”) we have seen in a while.

It’s hard to argue against many of the provision plusses built into Obamacare. Aside from more people getting health insurance and having access to prevention and wellness programs, gone will be pre-existing condition exclusions and lifetime coverage limits on your insurance. Furthermore, your insurance company can’t drop you because you’ve been sick. Benefits and social philosophy aside, however, where you stand on Obamacare may be determined by where you sit financially.

Costs vs. Benefits

As with most programs with benefits, Obamacare comes with a cost. Aware of the broad strokes of the Act, most Americans are still a bit fuzzy on the details. New provisions roll out each year, some affecting all Americans, others affecting only those making more than $250,000.

We can detail only a few here, so talk with your tax advisor to understand how this Act may affect your finances going forward.

Higher Taxes

“Be aware that the Medicare tax increase of 0.9 percent on wages exceeding $250,000 for joint filers, $200,000 for single filers and the additional three percent income tax on investment income for the same income category, are new taxes for 2013. And investment income includes income from rental properties,” says Christina Klein, CPA, MST, partner with Naperville’s Klein Hall & Associates. “The demographics in the Naperville area put many of our residents at risk of paying these additional taxes.”

Cammy Corso, Principal of DiGiovine Hnile Jordan & Johnson Ltd., Naperville, says their firm did a lot of planning with clients throughout 2012 to see if it made sense to accelerate investment income into 2012 to avoid paying the Medicare Surtax in future years. “The normal thought process is to defer income and accelerate deductions, but with higher tax rates on the horizon and the Medicare Surtax, we saw a lot of clients accelerating income and deferring deductions to take advantage of less tax on the income in 2012 and higher tax savings from deductions in 2013,” says Corso. “You have to do tax projections for each individual situation because it’s not always an obvious answer.”

Medical Deductions

Another 2013 deduction is the itemized deduction for medical expenses. You can only deduct medical expenses that exceed 10 percent of your adjusted gross income starting this year, up from 7.5 percent in 2012.

When you made your insurance elections at the end of 2012, you may have noticed that health care flexible spending accounts (FSAs) are now limited to $2,500, down from a maximum $5,000 in past years. This is one of the cuts from the Act. These FSA accounts are used to offset the cost of insurance deductibles, copayments, and coinsurance for an employee’s health plan and can cover anything from contact lenses to children’s braces and burdensome school tuitions for special-needs children. Previously, I opted for an annual $3,000 FSA (the cap my employer established), so I noticed the cutback, but it did not affect me as much as those who use this pre-tax option at much higher levels for more serious needs.

Obamacare encompasses too many areas and implications to cover in one article. Whether you agree or disagree with Grover Norquist’s Americans for Tax Reform, you’ll find it useful to hear his tax policy director detailing the 19 Obamacare provisions in a 2010 podcast. Though it has a definite right leaning, it’s worth tuning in: