PPACA Provisions | Tax Tip of the Week | No. 174

What to Expect in 2013

Now that the elections are over we know not much has changed in Washington D.C.  It now appears that the tax provisions of the Patient Protection and Affordable Care Act (Obamacare) will become effective in 2013.  Here is what you need to know: -There will be a new 3.8% Medicare Surtax.  This tax will be assessed on the net investment income of married couples with income over $250,000 and individuals with income over $200,000.  Net investment income is defined as income from interest, dividends, annuities, royalties and rental income.  It should be noted that net investment income does NOT include income from 401(k) (and other defined contribution savings plans) distributions or tax-exempt bond interest.  Gain from the sale of a principal residence is also excluded from this Medicare Surtax. -An additional Medicare Tax of 0.9% will be assessed on the earned income of married couples making over $250,000 and all others earning over $200,000.  Unlike FICA taxes, this additional tax is not split between the employer and employee—the employee pays the full 0.9%.  Employers are required to withhold this tax.  Married couples who are both employed may need to make estimated tax payments if their joint income exceeds $250,000 but individually they do not exceed $250,000. -Beginning in 2013, the AGI thresholds for deducting medical expenses as itemized deductions increases from 7.5% to 10%.  If the taxpayer or taxpayer’s spouse has attained age 65 by the end of the year, the effective date of this new threshold is delayed until 2017.  This new restriction on reduced medical deductions applies to all taxpayers regardless of income. -A 2.3% excise tax will be assessed on Medical Device Manufacturers.  This tax will be imposed on the sale of any taxable medical device by the manufacturer, producer or importer.  The tax, however, will not be assessed on the sale of eyeglasses, contact lenses, hearing aids and any other medical devices determined by the IRS to be of a type purchased by the general public at the retail level. -Employers will now be limited to a $2,500 maximum reimbursement as a benefit under a qualified cafeteria plan (health FSA). We will let you know about other 2013 tax changes as they become finalized.

As always, give us a call with any questions you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt - the guy behind TTW...until next week.