Benefits for Lower Income Taxpayers
Costs for Higher Income Taxpayers
There is a Health Insurance Premium Tax Credit that benefits low and medium income level taxpayers. Medicare taxes are expanded and a new levy is created. A good number of small businesses are exempt from the employer requirement.
Benefits for the less affluent taxpayers
Tax credit for health insurance. The legislation offers a tax credit to low and medium income level taxpayers. Starting 2014, there is a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance from an Exchange.
The refundable credit is paid to the insurer to help fund the purchase of certain health insurance plans. An eligible individual enrolls in a plan offered through an Exchange and conveys his or her income to the Exchange. The exchange analyzes the information and calculates the credit. The IRS pays the insurer. The premium amount the individual pays the insurer is the cost minus the credit. Employed individuals pay with payroll deductions.
The credit will be available for individuals and families with certain incomes levels and if they are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage.
The income test is up to 400% of the federal poverty level. The income thresholds are approximately $45,000 for an individual and $90,000 for a family of four.
Cost for more affluent taxpayers
Higher Medicare taxes. A supplemental Medicare is imposed Singles earning more than $200,000 and married couples earning more than $250,000. There is also a new Medicare levy on investments.
Medicare Taxes are the primary source of money for Medicare’s hospital program. The program pays hospital bills for participants older than 65 and the disabled. Right now workers and employers each pay 1.45%. Self-employed people pay both sides 2.90% Under the new law, in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Self-employed persons will pay 3.8% on earnings over the threshold.
Medicare tax levy on investments. Right now, Medicare tax is only assessed on wages. Beginning in 2013, a Medicare tax will, for the first time, tax investment income. The new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000. Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is includes deductions against income.
The new tax levy is not applicable to retirement accounts such as 401(k) plans. Also, the Medicare tax only applies to incomes in excess of the $200,000/$250,000 thresholds. For example a married filing joint return has $200,000 in wages and $100,000 in gains, $50,000 is taxed.
The employer mandate This is relevant to an employer who has employed an average of at least 50 full-time employees. This tax term is an “applicable large employer,” someone who employed an average of at least 50 full-time employees during the preceding calendar year. The law requires employers to offer coverage.
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