Each year since 2010, when the Patient Protection and Affordable Care Act (“Obamacare”) was passed into law, incremental changes have been implemented. Perhaps the largest and most sweeping of all will take effect in 2014. But there are some “behind the scenes” things set to kick in in 2013 that will most certainly impact the pocketbook of many Americans because of changes the new law makes to the tax code.
1. Itemized deduction for Medical Expenses. If you itemize tax deductions, you are aware that you are allowed to deduct medical expenses that exceed 7.5% of your adjusted gross income. Beginning in 2013, the threshold increases from 7.5% to 10.0%. At first glance, this may seem like minor change. But this change will affect mostly middle-class Americans and is expected to raise an additional $15.2 billion in tax revenue.
2. Flexible Spending Accounts. A Flexible Spending Account (FSA) has been a good way to help individuals and families reduce the cost of some out-of-pocket medical expenses by allowing them to be paid from pre-tax contributions into the account. Through 2012, the IRS has not had a limit on the amount of money that could be put into and FSA. However, beginning in 2013, Obamacare will limit the pre-tax contribution amount to $2,500. Those who are accustomed to contributing more than $2,500 will see a tax increase.
3. Medicare Tax. One of the payroll taxes withheld from your paycheck goes to fund Medicare. The amount has been 1.45% of your gross pay. Often, this amount is shown as part of the Social Security tax, or FICA. Beginning in 2013, this amount will increase by 0.90% (from 1.45% to 2.35%) on wages exceeding $200,000 for individuals or $250,000 for married couples filing jointly.
4. Unearned Income Tax. There will be a new 3.8% assessment on unearned income (interest, dividends, capital gains, and gain from the sale of a home) for higher-income taxpayers.
5. Tax on Medical Devices. $20 billion is expected to be raised from a new 2.4% excise tax on the sale of any taxable medical devices. This is, in effect, a Federal sales tax on certain medical goods.