Taxes and the Health Care Reform

The 2010 Health Care Reform law puts into motion alterations in tax-related issues for businesses and individuals. Employers should prepare their systems well ahead of the dates of the proposed changes. Individuals also need to understand the changes that the health care reform bill brings to their personal taxes.

Timeline for Tax Implications

Year 2011

• Exclude the costs for over-the-counter drugs not prescribed by a physician from being reimbursed through a Health Reimbursement Account (HRA) or a Flexible Spending Account (FSA) and from being reimbursed on a tax-free basis through a Health Savings Account (HSA) or an Archer Medical Savings Account (MSA).
• Increase the penalty for non-health withdrawals from an HSA to 20% of the disbursed amount.

Year 2013

• Limit the amount of contributions to an FSA for medical expenses to $2,500 per year. This will be increased annually by the cost-of-living adjustment.
• Increase the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% to 10% of adjusted gross income (AGI). This increase will be waived for individuals over 65 for tax years 2013-2016.
• Increase the Medicare payroll tax by 0.9% on earned income in excess of $200,000 for individual taxpayers and $250,000 for married couples filing jointly. Employers do not have to match this amount.
• Imposed a 3.8% investment tax on unearned income for taxpayers with an adjusted gross income in excess of $200,000 for individual taxpayers and $250,000 for married couples filing jointly.