Ring in the New Year with your New Healthcare Taxes
Most of the new healthcare taxes will fall on high income earners, but the middle class and medical device industry will also take a hit.
Directly impacting taxpayers is the Medicare tax hike on high income wage earners, higher taxes on investment income, lower contributions to flexible spending accounts and a higher threshold for deducting medical expenses from income tax.
The Affordable Health Care Act is funded through the Medicare taxes of high income earners. These taxes hit individuals earning over $200,000, and joint filers earning more than $250,000. Medicare taxes will go up by .9% for these folks and they will be hit with an additional 3.8% on unearned income.
Also hit will be folks who earn a greater share of their income from investments. Even if their regular income isn't high enough for the additional taxes, their investment income would be hit with an additional 4% tax. The consequence will most likely be less investment.
The cost of the Affordable Healthcare Act will not just hit the "rich." Two new taxes will affect the middle-class. Taxpayers used to be able to deduct health care expenses that total more than 7.5% of their income. Starting in 2013, that threshold will rise to 10%. This deduction is most often utilized by lower income earners with high medical bills.
According to Lindsey Buchholz of the H&R Block Tax Institute, about 10 million taxpayers deduct around $80 billion in health care expenses a year.
The second of the two middle class taxes is a limit on flexible spending accounts. Previously there was no limit to what an individual could contribute in pre-tax dollars, but now contributions will be limited to $2500. These two provisions are expected to raise $40 billion of the next 2 years.
The medical device tax, and addition 2.9% tax on medical devices, is expected to raise $29 Billion over the next ten years. Unlike other taxes that can be passed on to the consumer, Medicare is the largest purchaser of medical devices; Medicare doesn't function in a free market where companies are able to pass the costs on to consumers. The industry will have no choice but to absorb the costs by cutting the work force or reducing their output.
Happy New Year!