The passage of two bills by Congress provides for massive reform of the country’s health care system. The first bill, the “Patient Protection and Affordable Care Act” (H.R. 3590), was signed by President Obama on March 21, 2010. The companion bill, the “Health Care and Education Reconciliation Act of 2010” (H.R. 4872), makes several changes to the “Patient Protection Act.” It was signed into law on March 30. Taken together, these two pieces of legislation will have a major impact on the health care industry and on the taxes paid by businesses and individuals.
Provisions in these laws will go into effect over the next several years, creating an estimated $438 billion in new taxes on employers and individuals. Among the key tax provisions in the health care reform laws:
* Starting July 1, 2010, a 10% tax will be imposed on indoor tanning services.
* The tax credit for adoption expenses is increased to $13,170 for 2010, and the credit is extended through 2011.
* Starting in 2011, the penalty for using health saving account funds for nonqualified expenses increases from 10% to 20%.
* Starting in 2013, contributions to flexible spending accounts for medical expenses are limited to $2,500. Beginning in 2011, over-the-counter medications generally cannot be purchased with these funds.
* Starting in 2013, the 7.5% income threshold for deducting unreimbursed medical expenses increases to 10% for those under age 65.
* Starting in 2013, the payroll Medicare tax, now 1.45% of wages, will increase to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by couples filing jointly.
* Starting in 2013, a new 3.8% Medicare tax will be imposed on unearned income for single taxpayers with incomes over $200,000 and couples with incomes over $250,000. Unearned income includes interest, dividends, capital gains, rental income, and income from passive activities.
* Beginning in 2018, insurance companies will be assessed a 40% excise tax on health insurance plans with annual premiums exceeding $10,200 for individuals and $27,500 for families.
The health reform legislation contains over 2,500 pages. It is estimated to cost $940 billion over ten years, cut the federal deficit $143 billion over ten years, and reduce the number of uninsured individuals by 32 million.