The Patient Protection and Affordable Care Act of 2010 (ACA), more commonly known as Obamacare, imposes a lot of changes to the tax law. Here's a summary of the major taxes, penalties, fines and tax credits, so just scroll down until you find your situation and see how the ACA taxes apply to you.
Individuals and FamiliesIf you itemize, you can only deduct the medical expenses (that aren't covered by your health insurance) that exceed 10% of your income, up from 7.5%.
If you use a Health Savings Account (HSA) or similar account, you can only save $2,500 pre-tax. Over-the-counter drugs are now excluded as a eligible FSA medical expenses. If you don't use FSA funds for medical expenses, the tax penalty increased to 20%. For more, see IRS Guidance on HSAs and Health Savings Accounts.
If you make more than $200,000 a year ($250,000 for married couples filing jointly, and $125,000 for married couples filing separately), you are assessed an additional 0.9% Medicare hospital tax on your income and self-employment profits above this threshold. You are also taxed an extra 3.8% on the lesser of (a)investment income such as dividends and capital gains or (b)adjusted gross income that is above the threshold. (Source: IRS Net Investment Tax); Forbes, Will You Pay the New Obamacare Tax?)
If your income is above this threshold, Obamacare taxes will apply if you sell your home or other real estate ONLY IF you make more than $250,000 (singles) or $500,000 (married couples) in capital gains. That means you've got to clear this amount after deducting the original purchase price and other investments that you've made. If you're selling investment property, you don't receive this exclusion, so the Obamacare tax treats it like any other capital gains. (Source: INMAN, Demystifying Obamacare Real Estate Tax, February 14, 2013)
2014 - The most widespread change begins in January, when everyone is required to have health insurance (for at least 9 months out of the year) or pay an additional tax. The tax will be 1% of your adjusted gross income (AGI), but it's capped at a maximum level. It will never be more than the cost of purchasing the "bronze" health insurance plan on the exchanges. The CBO estimates this to be roughly $4,500 annually for individuals and $12,000 for families. The tax will never be less than a minimum flat tax. This minimum flat tax is $95 per adult and $47.50 per child. It's capped at $285 per household. (Source: Factcheck.org, How Much Is the Obamacare Tax?)
If your income is 400% or less of the Federal Poverty Level, you may qualify for a tax credit. To give you an idea, you'll get the credit if your income is $45,960 or less if you're a single taxpayer, and up to $94,200 for a family of four. Find out more at Will I Qualify to Save on Monthly Premiums?
If your income is 225% of the poverty level ($28,725 for individuals or $58,875 for a family of 4), you may also be able to save on your out-of-pocket costs. Any insurance company that sells on the exchange must reduce your costs to an affordable level. For more, see Out of Pocket Costs.
If your income is 133% or less of the poverty level ($15,281 for an individual, or $31,321.50 for a family of four), you won't have to pay the tax. In most states, you will also be eligible for Medicaid. Find out if you qualify for Medicaid. You also won't have to pay the tax if:
- Your income is so low that coverage is unaffordable or you aren't required to file a tax return.
- You're a member of an Indian tribe.
- You participate in a health care sharing ministry or are a member of a religion that objects to health insurance.
- You apply for an exemption. For more, see What If You Don't Have Health Coverage.
2015 - If you don't have insurance, the tax rate increases to 2% of AGI. The minimum flat tax will be $325 per adult, and $162.50 per child, capped at $975 per family.
2016 - If you aren't covered by insurance, the tax rate is 2.5% of AGI. The minimum is $695 per adult, and $347.50 per child, capped at $2,085 per family. After 2016, the base fee rises with the CPI. (Source: IRS, Affordable Care Act Tax Provisions; Blue Cross and Blue Shield, Individual Mandate Fact Sheet)
BusinessesLess than 25 employees - If you provide health insurance, the average wage of your employees is less than $50,000, and you pay at least half of the premiums, you can get a tax credit for up to 35% of the cost. This goes up to 50% in 2014. This doesn't apply to the health insurance costs of owners. For more details, see About Small Business Tax Credits. To see if you qualify, go to Small Business Tax Credit.
Less than 50 employees - To help you find the cheapest plans, you can can start looking on the health insurance exchanges in November 2013.
50 or more employees - In 2015, if you don't provide health insurance you must pay an excise tax of $2,000 per employee, except for the first 30 employees. (Sources: How Obamacare Affects Small Businesses; Washington Post Factchecker, Obamacare Tax Hikes)
All businesses - You can get Federal financial assistance if you offer health insurance to early retirees 55-64. You can get a tax credit of 28% of drug costs if you offer prescription coverage for retired employees. For details, go to ERRP and Helping Small businesses with Obamacare. Here's more on How Obamacare Affects Small Businesses.
2018 - Companies who offer high-cost health insurance plans (the so-called Cadillac plans) will be levied a 40% excise tax. These plans have premiums of at least $10,200 (individuals) or $27,500 (families), and are usually needed by those in dangerous jobs. (Source: Kaiser, Cadillac Tax Explained, March 18, 2010; Tax Impacts of Obamacare)
Indoor tanning services - Are levied an excise tax of 10% of the actual cost of tanning. (For details, see Tanning Salon Excise Taxes)
Medical Device Manufacturers - You now pay a 2.3% excise tax on gross sales. (Source: IRS Medical Device Excise Tax)
Prescription Drug Makers and Importers - Are levied an annual fee. (Source: Tax Impacts of Obamacare)
Corporations - In 2014, the estimated tax payments factor will increase by 15.75% for corporations with assets of at least $1 billion. For details, see Health Care Business Tax
CharitiesTax-exempt employers can get a 25% tax credit as a refund, under the same conditions as small businesses above. This goes up to 35% for charities in 2014.(See IRS.gov)
Health Insurance CompaniesIn 2013, they can only deduct $500,000 for any one employee's compensation. (Source: Tax Impacts of Obamacare)Article updated October 29, 2013
More on Obamacare
- How Will Obamacare Affect Me?
- How Much Will Obamacare Cost Me?
- How Does Obamacare Work?
- When Does Obamacare Start?
- Obamacare Pros and Cons
- How Much Will Obamacare Cost Me?
- Obamacare Summary - How It Affects You
- How to Get Obamacare
- What's in the Obamacare Bill
- The 2012 Supreme Court Ruling on Obamacare
- Obamacare Explained - Simple Enough to Explain to Your Kids
- The True Cost of Obamacare to the Nation
- Repeal Obamacare?