, Answering FAQ'sTurboTax Employee
Although several tax-related provisions in the Affordable Care Act (also known as "Obamacare") have already been implemented, they most likely had little or no impact on your 2010, 2011, and 2012 tax returns.
That may change when it comes time to file your 2013 and 2014 taxes. Most notably, 2014 is when uninsured taxpayers may be penalized for not having health insurance coverage.
Click the links below to learn how – or if – the upcoming health care law changes will affect your future taxes. (To see which Affordable Care Act laws are already in place, click here.)
Changes to 2013 taxes
Starting with tax year 2013, all taxpayers may be subject to:
- Caps on flexible spending account (FSA) contributions. For 2013, the FSA contribution limit, or cap, is reduced to $2,500, which means that any FSA contributions in excess of $2,500 will be included in taxable income. (Previously, employers could set a cap of up to $5,000.) The cap is expected to rise annually to keep up with the cost of living.
- New limits on itemized medical deductions. If you itemized on your 2012 tax return, you were allowed to deduct out-of-pocket medical expenses if they exceeded 7.5% of your income. Starting in 2013, your out-of-pocket medical expenses must exceed 10% of your income before you're able to deduct them.
- Note: This new 10% limit only applies if you're under 65. If you're 65 or older, the new limit won't go into effect until 2016.
In addition, single filers with incomes exceeding $200,000 and joint filers with incomes exceeding $250,000 will be subject to these Medicare tax changes:
- Medicare tax on earned income will increase from the current 1.45% to 2.35%, but only on the income above and beyond the $200,000 single filer/$250,000 joint filer thresholds.
- Medicare tax on investment income is a new 3.8% tax imposed on interest, dividends, capital gains, rent, and royalty income. (Income from retirement accounts is exempt from the new tax.)
Changes to 2014 taxes
Tax year 2014 is when the Affordable Care Act really "hits home" for taxpayers who don't have health care coverage.
By March 31, 2014, taxpayers (with a few exceptions) must have purchased, enrolled in, or signed up for health care insurance coverage if they want to avoid a possible penalty for each uninsured person on their 2014 tax return.
Taxpayers who choose to purchase health insurance through their state's health insurance exchange may be eligible for a government subsidy or tax credit, if their household income falls below a certain level.
Although coverage must be in effect as of March 31, 2014, the penalties won't be reflected on 2013 tax returns, which are filed in 2014.
Already have health insurance?
Taxpayers who are already covered through an employer, Medicare, Medicaid, or other plan, as well as those who will not need to file a 2014 return because their income falls below the filing threshold will not be required to purchase health care insurance.
- The Affordable Care Act ("Obamacare"): What You Need to Know
- What are the Affordable Care Act penalties for not having health insurance?
- How Healthcare Reform Will Change the Way You Pay Taxes