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The 2010 Healthcare Act as Amended by the 2010 Healthcare Reconciliation Act (hereafter known as the “Act”) passed on March 30, 2010. Most of the Act’s provisions do not go into effect until 2011 and future years. This timing provides the opportunity to start planning now. The following is a summary of the Act’s significant tax provisions as they apply to Individuals and the taxable years they are to take effect in.
Individuals
Starting in 2014, if you are not covered by Medicare or Medicaid, you will be required to have health insurance coverage or pay a penalty (with some exemptions). Employer-provided health insurance coverage satisfies the universal coverage requirement, so if you currently have coverage and wish to keep it, you can do so under a “grandfather” provision.
- 2010 – Children under age 27 qualify as a dependent for health insurance coverage (effective 3/30/10).
- 2011 – Over-the-counter drugs can no longer be purchased with health savings accounts (FSAs, HSAs, and HRAs), unless they are prescribed by a healthcare professional. The excise tax on distributions from health savings account that are not used for qualified medical expenses has increased from 10% to 20% and on Archer MSAs from 15% to 20%.
- 2013 – An “Unearned Income Medicare contributions” tax of 3.8% will be imposed on net investment income which includes: interest, dividends, royalties, rents, short & long term capital gains, passive activity gains, and income from a trade or business that is a passive activity. Estates and trusts will also be subject to the 3.8% unearned income Medicare tax, but likely simple and grantor type trusts will not be subject to it. The Act also includes a provision for additional Medicare payroll taxes of 0.9% (imposed on earned income of $200,000 or more for an individual and $250,000 or more for married taxpayers). Unfortunately, taxpayers with high wage income and investment income will find themselves subject to both additional taxes.
