Health care and health insurance can be very expensive. The Affordable Care Act (also known as Obamacare) has a number of new or modified taxes, deductions, and penalties that might affect both your healthcare coverage and your income taxes.
Health Insurance Premium Tax Credit
In a new premium tax credit will be available to help individuals and families purchase health insurance through an Affordable Insurance Exchange. Because this premium tax credit is refundable, it can still benefit people who have little or no income tax liability.
Medical and Dental Expenses Deduction
As of January you can claim deductions for any medical care expenses that are not covered by your health insurance if and when they reach ten percent of your adjusted gross income. People 65 or older can deduct unreimbursed medical care expenses that are in excess of 7.5% of their adjusted gross income. These expenses can include fees to medical professionals, hospitals, nursing homes, as well as payments for insulin and prescription drugs. These expenses also include costs of transportation to and admission to medical conferences for a chronic condition that you, a spouse, or a dependent has. Transportation for medical care can also be deducted. Keep your receipts and maintain clear records of all of these expenses.
Tax Penalty
By, all United States citizens are required to have some form of health insurance for themselves and for their dependents. If you do not have health insurance either through a government-sponsored exchange or a private health insurance provider, you may be subject to a tax penalty. In 2014, the penalty for not carrying health insurance will be $95, which the IRS will withhold from an individual’s tax return in order to collect. Exemptions are available for people with financial hardships, religious objections, and certain other extenuating circumstances, but individuals must apply for these exemptions.
Additional Medicare Tax
Starting in, the 0.9 percent Additional Medicare Tax applies to an individual’s wages and income that exceed $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. Employers are responsible for withholding this Additional Medicare Tax from employees’ wages and compensation. Dividends, interest, capital gains, royalty income, and income from rent may also be subject to a new 3.8 percent Medicare contribution tax.
FSA Contributions
Individuals can contribute up to $2,500 annual to an FSA, or a Flexible Spending Account, that is part of an employer’s so-called “cafeteria” benefits plan. The FSA can pay for medical expenses including deductibles and copayments, not to mention services that insurance doesn’t cover. Contributions to an FSA are not subject to federal income taxes or to payroll taxes.
Small Business Health Care Tax Credit
For small businesses and tax-exempt organizations (fewer than 25 full-time equivalent employees) who pay at least half the cost of single coverage for their employees, the Small Business Health Care Tax Credit helps these businesses afford the cost of this coverage. Starting in, small businesses can claim a tax credit of 50 percent, and small tax-exempt employers, such as charities, can claim 35 percent. This credit was designed to encourage small business employers to offer new coverage or maintain existing coverage. This article was written by Richard Craft, an MBA student who hopes that his articles help you make better financial decisions in the present and future. He writes this on behalf of Global Tax Services, your number one choice for all your tax needs. Check out their website today and see why so many people consider them the best!
