- Days left

Health Care Tax Hikes for 2013 May Be Just the Beginning

Healthcare BillBy Ricardo Alonso-Zaldivar

New taxes are coming Jan. 1 to help finance President Barack Obama's health care overhaul. Most people may not notice. But they will pay attention if Congress decides to start taxing employer-sponsored health insurance, one option in play if lawmakers can ever agree on a budget deal to reduce federal deficits.

The tax hikes already on the books, taking effect in 2013, fall mainly on people who make lots of money and on the health care industry. But about half of Americans benefit from the tax-free status of employer health insurance. Workers pay no income or payroll taxes on what their employer contributes for health insurance, and in most cases on their own share of premiums as well.

It's the single biggest tax break the government allows, outstripping the mortgage interest deduction, the deduction for charitable giving and other better-known benefits. If the value of job-based health insurance were taxed like regular income, it would raise nearly $150 billion in 2013, according to congressional estimates. By comparison, wiping away the mortgage interest deduction would bring in only about $90 billion.

"If you are looking to raise revenue to pay for tax reform, that is the biggest pot of money of all," said Martin Sullivan, chief economist with Tax Analysts, a nonpartisan publisher of tax information.

It's hard to see how lawmakers can avoid touching health insurance if they want to eliminate loopholes and curtail deductions so as to raise revenue and lower tax rates. Congress probably wouldn't do away with the health care tax break, but limit it in some form. Such limits could be keyed to the cost of a particular health insurance plan, the income level of taxpayers or a combination.

Many economists think some kind of limit would be a good thing because it would force consumers to watch costs, and that could help keep health care spending in check. Obama's health law took a tentative step toward limits by imposing a tax on high-value health insurance plans. But that doesn't start until 2018.

Next spring will be three years since Congress passed the health care overhaul but, because of a long phase-in, many of the taxes to finance the plan are only now coming into effect. Medicare spending cuts that help pay for covering the uninsured have started to take effect, but they also are staggered. The law's main benefit, coverage for 30 million uninsured people, will take a little longer. It doesn't start until Jan. 1, 2014.

The biggest tax hike from the health care law has a bit of mystery to it. The legislation calls it a "Medicare contribution," but none of the revenue will go to the Medicare trust fund. Instead, it's funneled into the government's general fund, which does pay the lion's share of Medicare outpatient and prescription costs, but also covers most other things the government does.

The new tax is a 3.8 percent levy on investment income that applies to individuals making more than $200,000 or married couples above $250,000. Projected to raise $123 billion from 2013-2019, it comes on top of other taxes on investment income. While it does apply to profits from home sales, the vast majority of sellers will not have to worry since another law allows individuals to shield up to $250,000 in gains on their home from taxation. (Married couples can exclude up to $500,000 in home sale gains.)

Investors have already been taking steps to avoid the tax, selling assets this year before it takes effect. The impact of the investment tax will be compounded if Obama and Republicans can't stave off the automatic tax increases coming next year if there's no budget agreement.

High earners will face another new tax under the health care law Jan. 1. It's an additional Medicare payroll tax of 0.9 percent on wage income above $200,000 for an individual or $250,000 for couples. This one does go to the Medicare trust fund.

Donald Marron, director of the nonpartisan Tax Policy Center, says the health care law's tax increases are medium-sized by historical standards. The center, a joint project of the Brookings Institution and the Urban Institute, provides in-depth analyses on tax issues.

They also foreshadow the current debate about raising taxes on people with high incomes. "These were an example of the president winning, and raising taxes on upper-income people," said Marron. "They are going to happen."

Other health care law tax increases taking effect Jan. 1:

- A 2.3 percent sales tax on medical devices used by hospitals and doctors. Industry is trying to delay or repeal the tax, saying it will lead to a loss of jobs. Several economists say manufacturers should be able to pass on most of the cost.

- A limit on the amount employees can contribute to tax-free flexible spending accounts for medical expenses. It's set at $2,500 for 2013, and indexed thereafter for inflation.

Increase your money and finance knowledge from home

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

TurboTax Articles

Will Medicare/Medicaid be Impacted by ACA?

The Affordable Care Act put in place significant tax-related programs that impact Medicare and Medicaid, such as increased Medicare taxes on earned and unearned income for high-wage earners, and Medicaid changes that increase the number of insured individuals. Establishing whether you are affected by the ACA-imposed taxes, or are eligible for certain health programs that fall under the Centers for Medicare and Medicaid Services, is determined by filing your income tax.

8 Things You Think Are Tax Deductible That Aren't

There?s a fine line between looking to save money on your taxes and taking deductions that will raise eyebrows at the Internal Revenue Service. Some taxpayers are tripped up by expenses that they assume are tax deductions, but don?t qualify under IRS guidelines. Here are a dozen items that can lead to unpleasant surprises in case of an audit.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

What are 1095 Tax Forms for Health Care?

In 2014 the Affordable Health Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. These forms help determine if you need to comply with the new shared responsibility payment, the fee you might have to pay if you don't have health insurance. For individuals who bought insurance through the health care marketplace, this information will help to determine whether you are able to receive an additional premium tax credit or have to pay some back.

Add a Comment

*0 / 3000 Character Maximum


Filter by:
Frank A DeTrana

As half of health care spending is deficit spending, shouldn't taxes rightfully double to pay for what we already consume?

February 20 2013 at 10:52 AM Report abuse rate up rate down Reply

Senior Citizens were told that their insurance rates would not go up due to "Obama Care" - SO WHY have Senior Citizens Medicare, Health, Dental and Prescription Costs Gone Up? There was enough money in Medicare for President Obama to be able to take over SEVEN - HUNDRED - BILLION - FROM - MEDICARE! The 1.7% increase ends up costing Senior Citizens more money and leaving them in a HOLE!!

December 29 2012 at 12:48 PM Report abuse +1 rate up rate down Reply

LOL!,.....Obama is looking to raise taxes on himself. I wonder if the republicans would do that?
LMAO. It makes you Obamites feel good to hear Obama "say" those words. But so far he hasn't paid more taxes. In fact last year he used every loophole to get himself a $25,000.00 refund. Obama will be able to freeload off the taxpayers for the rest of his life.

December 27 2012 at 7:39 PM Report abuse rate up rate down Reply

Harry Reid has a lot of gall calling someone else a dictator. Reid is a double talking weasel.

December 27 2012 at 7:37 PM Report abuse rate up rate down Reply

The Tea Party has already done that.

Somehole proudly wears his new dunce cap.

December 27 2012 at 5:44 PM Report abuse rate up rate down Reply

How is the Affordable Care Act helping make health care affordable for those who already have insurance? All I see is more taxes, taking away the tax exempt status of employer provided insurance as well as the premiums employees pay, etc.

December 27 2012 at 5:42 PM Report abuse +1 rate up rate down Reply

Did everyone see that Somehole turned 5? LMAOOO


December 27 2012 at 5:00 PM Report abuse rate up rate down Reply

Somehole couldn't care less if the country goes off the cliff. He'll still get his welfare check.

December 27 2012 at 4:53 PM Report abuse +1 rate up rate down Reply

When are the democrooks going to stop their facade that they are worried about the country going off the cliff.
The democrooks want the country to go off the cliff so taxes go up on everyone!!!!!!!!!!!!!!!!!!

December 27 2012 at 4:35 PM Report abuse +1 rate up rate down Reply

Woooooooooooo Harry Reid issues a warning to John Boehner about the fiscal cliff. I bet Boehner's just shaking in his boots that over the hill obstructionist Harry Reid issued a warning. LMAO.

Harry the obstructionist even blocked Obamas fiscal cliff proposal.

Like Obama, Reid hopes we go over the cliff so taxes go up on everyone.

December 27 2012 at 4:30 PM Report abuse +1 rate up rate down Reply