Health Reform and Tax Changes: What Will the Financial Impact on You Be?

The two health reform bills signed by the president will have an impact on every medical practice, employer, and U.S. citizen. Though most of the changes mandated will not be implemented for a number of years, others will take effect sooner.

Major Individual Tax Changes

Medical Insurance Tax: Starting in 2013, an additional 0.9 percent Medicare Hospital Insurance tax (HI tax) will be charged on self-employed individuals and employees with respect to earnings and wages received during the year above certain thresholds — $200,000 single and $250,000 married filing jointly.

Unearned Income Medicare Contribution: There is a provision for an unearned income Medicare contribution assessed on income from interest, dividends, capital gains, annuities, royalties, and rents. The tax would be at 3.8 percent based on the lesser of the taxpayer’s net investment income or modified adjusted gross income in excess of the threshold amounts of $200,000 for singles and $250,000 for joint filers.

Medical Expense Deduction: The threshold will be raised for the itemized medical expense deduction from 7.5 percent of adjusted gross income (AGI) to 10 percent of AGI beginning after 2012. However, individuals age 65 years and older — and their spouses — would be temporarily exempt from the increase until 2017.

Limit on Health Flexible Spending Arrangements: Beginning in 2011, employee salary reductions for coverage under a cafeteria plan FSA will be limited to $2,500 per taxable year. If a cafeteria plan does not contain this limitation, then benefits from the FSA will not be qualified benefits.

Individual Mandate: All individuals are required to obtain health insurance or pay a penalty on their federal tax returns beginning in 2014. A new refundable healthcare premium tax credit will be provided to assist individuals and families who purchase healthcare on the individual market.

Since these initiatives have varying implementation dates, physicians should carefully evaluate which aspects of the legislation affect them — see whitehouse.gov/health-care-meeting/proposal — and create a budget to determine the financial impact on their organizations.