continued Remember, specific tax strategies need to be tailored to your unique situation and the tax impact should only be one factor in determining how you manage your finances. However, proper planning for the projected tax changes can enhance your financial position. Your financial planner can help ensure that it does.
The Affordable Care Act and taxes
Few acts of legislation over the past few years have stirred as much heated debate as the Affordable Care Act. Amid all the political rancor and angling, it’s easy to understand why most people can more easily identify the Affordable Care Act as Obamacare than can explain what the Affordable Care Act is, what it provides and what it means to taxpayers.
Enacted in 2010, the Affordable Care Act was developed to put in place consumer protections, provide new coverage options and give individuals the tools they need to make informed health care decisions. As far as how well it does that, the opinions are clearly divided. However, one thing that is not subject to debate is the fact that the Affordable Care Act contains a number of tax provisions that often get overshadowed by all the commotion surrounding the act itself. For tax planning purposes, here are a few of the tax provisions contained within the Affordable Care Act you should know about.
- There is an increase in the individual portion of the Medicare payroll tax on wages, from 1.45 to 2.35 percent, provided income exceeds thresholds (0.9 percent).
- This increase applies only to taxpayers who earn wages in excess of $200,000 if modified AGI exceeds: $250,000, married filing jointly; $125,000, married filing separately; or $200,000 for all others.
- There are limitations on medical expense deductions.
- For taxpayers younger than age 65, the threshold has increased from 7.5 percent of AGI to 10 percent of AGI. For taxpayers older than age 65, the threshold remains at 7.5 percent through 2016.
- Annual contributions to healthcare Flexible Spending Accounts (FSA) are capped at $2,500. Currently the maximum FSA contribution is set by employers, with the most common maximum amount set at $5,000.
- There is a Medicare surtax of 3.8 percent imposed on investment income, provided the taxpayer’s AGI exceeds thresholds.
For more information on how the Affordable Care Act affects your financial planning strategy, consult with your tax advisor or financial planning professional.
Stephen J. Augstell, CFP, MS, is regional financial planning manager and senior vice president for KeyPrivate Bank in the Northeast Region. His office is in downtown Albany, and he may can be reached at either 518-257-8741 or firstname.lastname@example.org.