The Affordable Care Act ushered in new health insurance requirements and, along with them, new tax responsibilities for many taxpayers. Below are some of the changes that could affect your taxes beginning the 2013 tax year.
Changes to Your W-2
You may notice on your 2013 W-2 that your employer has recorded the cost of coverage for your part of the group health plan. Not to worry, this number is not going to affect your taxes. The IRS states that this reporting is for informational purposes only.
Increase in Medicare Tax
Individuals earning more than $125,000 as single filers, or $250,000 for joint filers, will be subject to a higher Medicare tax. These individuals will see their employer holding back an additional 0.9 percent from their paychecks or, if self-employed, will be expected to do so themselves. This additional Medicare tax is also due on tips and fringe benefits that push you over the limit.
Some families with one high-income earning spouse may see the additional tax withheld even though their joint income doesn’t meet the requirements. In this case, the tax filers will be permitted to claim the overpayment as a credit against their tax liabilities at the end of the year.
New Net Investment Income Tax
As of 2013, certain trusts and estates and individuals with a modified adjusted gross income of $125,000 (for individual filers. $250,000 for joint filers) will be subject to a new, 3.8 percent tax on some of their net investment income. For the purpose of this tax, investment income includes dividends, capital gains, rental income and royalties.
Credits and Deductions
Another change is in the way itemized deductions are handled for medical expenses. Beginning in the 2013 tax year, taxpayers can only claim deductions for those medical expenses their insurance didn’t cover once these expenses reach 10 percent of their adjusted gross income. In prior years, they were permitted to claim deductions for expenses exceeding 7.5 percent of AGI. Individuals over age 65 may be entitled to continue to get deductions for expenses exceeding 7.5 percent, at least until 2016.
This lost deduction could be offset for some individuals and families who find that they qualify for premium tax credits making insurance coverage purchased through the Affordable Care Act exchange more affordable.
At Kramer Wealth Managers, we know how difficult it can be to catch up on the latest tax changes. We can work with you to make sure you remain compliant with new tax requirements while also helping to get you all the credits and deductions you qualify for. Contact us today to discover how we can help make tax time easier.