The key individual tax provisions of PPACA include:
- Additional Medicare Tax – Starting 2013, an additional 0.9% Medicare tax will be imposed on wages and self-employment income of higher-income individuals (over $200,000 or $250,000 depending on filing status).
- Medicare Tax on Investment Income – Beginning in 2013, the PPACA imposes a 3.8% Medicare contribution tax on unearned income. The tax is imposed on the lesser of the individual’s net investment income or the modified adjusted gross income in excess of $200,000 or $250,000, depending on filing status). Net investment income includes interest, dividends, annuities, royalties, rents, capital gains, and passive business income.
- Medical Deduction Threshold – The threshold to claim an itemized deduction for unreimbursed medical expenses will increase from 7.5% of Adjusted Gross Income (AGI) to 10% of AGI starting in 2013.
- Additional Tax on HSA/MSA Distributions – The penalty on distributions not used for qualified medical expenses is increased from 10% to 20% for HSAs and from 15% to 20% for Archer MSAs.
- Individual Mandate – Applicable individuals are required to carry minimum essential health coverage for themselves and their dependents or pay a shared responsibility penalty. There are some exempted individuals, including those covered by Medicare and Medicaid. This provision is effective beginning in 2014.
- Dependent Coverage Until Age 26 – Requires group health plans and health insurance issuers providing dependent coverage for children to continue to make the coverage available for an adult child until turning age 26. The coverage requirement is effective for the first plan year beginning on or after September 23, 2010.
- Employer Mandate – Shared responsibility payment will apply to businesses with an average of 50 or more employees that do not offer fulltime employees minimum essential coverage or those that offer minimum essential coverage that is deemed to be unaffordable according to the employees’ household income or does not provide minimum value. Provision is effective in 2014.
- Small Employer Health Insurance Tax Credit – Provides a tax credit to small employers who provide health insurance to their employees up to 35% of the health insurance premiums paid. Credit increases to 50% of premiums in 2014, but employers must participate in an insurance exchange in order to claim the credit.
- Health FSAs Contribution Limits – For plan years beginning in 2013, contributions to health FSAs are limited to $2,500, down from $5,000.
- Over-the-Counter Medicines – Beginning in 2011, reimbursements from health FSAs, HRAs, HSAs, and Archer MSAs for medicine or drugs is limited to prescribed drugs or insulin and cannot include over-the-counter medicines.
- Form W-2 Reporting –Employers are required to disclose the aggregate cost of applicable employer-sponsored coverage on an employee’s Form W-2. Reporting is for informational purposes only. Reporting was optional for all employers for 2011. Starting in 2012, an employer is not subject to reporting for any calendar year if the employer was required to file fewer than 250 Forms W-2.
- Exchanges – Each State is required to establish an American Health Benefit Exchange and Small Business Health Options Program to provide qualified individuals and qualified small business employers access to health plans.
Information provided by Wolters Kluwer