Monday, December 31, 2012

Obamacare Hits Home

Courtesy of USAA, the bill-we-had-to-pass-to-find-out-what's-in-it:

Many Americans could face higher tax bills Jan. 1, 2013, as a result of four health care-reform law changes.

Here's a look at what's about to hit — unless Congress otherwise acts — and how you may be able to minimize the impact to you.

What's Coming Jan. 1

1. Limit on flexible spending account (FSA) contributions. Today, employers set their own caps on how much employees can contribute to these plans that let them use pretax money to pay for health care expenses. For 2013, the government will enforce a $2,500 limit per employee.

2. A new Medicare surtax on investment income. Until now, Medicare taxes have only applied to earned income. For 2013, taxpayers filing individually with wages and self-employment income above $200,000 ($250,000 for married couples filing jointly) will pay a 3.8% surtax on the lower of:

  • Their net investment income — which includes interest, dividends, capital gains and other amounts.
  • The amount of their modified adjusted gross income that is greater than $200,000 ($250,000 for married couples filing jointly).

3. An additional Medicare tax on wages and self-employment income for some. The existing Medicare payroll tax of 2.9% (of which 1.45% is paid by a taxpayer through payroll deductions) will be increased by 0.9% on wages or self-employment income that exceeds $200,000 for single and qualifying head of household and widow(er) filers ($250,000 for married couples filing jointly).

4. Higher hurdle for deducting medical expenses. Currently, out-of-pocket medical costs only are deductible to the extent they exceed 7.5% of your adjusted gross income. For 2013, that hurdle will rise to 10%. But if you're 65 or older, that threshold remains frozen at 7.5% through 2016.

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