Friday, November 14, 2014

7 Steps to Understanding the Affordable Care Act This Tax Season

Terri Sheridan for AccountingWeb.com writes:The Affordable Care Act has brought monumental change to the U.S. healthcare system, and its impact on taxpayers and accountants continues to be no small matter either. Daniel G. Mazzola, CPA, an investment advisory representative with American Portfolio Advisors, specializes in ACA issues. He offers the following tips and advice about the law and its requirements, as we head into tax season.
  1. The medical expense deduction threshold rose from 7.5 percent of adjusted gross income (AGI) to 10 percent. That's not applicable if the taxpayer or spouse is 65. The age-based waiver expires in 2016. What that has meant for your clients with AGIs of $100,000 and $10,500 in medical expenses is that they could have claimed a $3,000 deduction in 2012, but only $500 last year. The increased threshold doesn't apply if either the taxpayer or spouse turns 65 before the end of years 2013 to 2016. The exemption is rescinded in 2017. For purposes of the Alternative Minimum Tax, medical expenses are deductible only if costs exceed 10 percent of AGI. The healthcare act doesn't change treatment of the alternative minimum tax (AMT).
  1. The employee portion of the Medicare tax on wages is increased by 0.9 percent on wages in excess of $250,000/$125,000/$200,000 for married people filing jointly, or separately, or singles. The so-called FICA Tax comprises a Social Security tax equal to 6.2 percent of wages up to the taxable wage base ($113,700 last year) and a Medicare tax equal to 1.45 percent of all wages. Both employer and employee are subject to FICA tax. Under the ACA, the employee portion of the Medicare tax is increased by an additional tax of 0.9 percent on wages in excess of the threshold amounts noted above. But the additional tax is levied only when an individual's wages pass the $200,000 mark. So an employee may be subject to extra withholding by earning more than $200,000 but not liable for the additional 0.9 percent tax because of a combined income with a spouse of less than $250,000. This person will receive a credit for the tax withheld.
  1. Taxpayers with a modified AGI of more than $250,000/$125,000/$200,000 for married people filing jointly or separately, or singles, are subject to a 3.8 percent Medicare Contribution Tax. Last year, the ACA imposed a new 3.8 percent tax on net investment income for higher income individuals. That income includes interest, dividends, annuities, realties and rents, and is taxed if modified AGI exceeds $250,000 for joint returns, $125,000 for married couples filing separately and $200,000 for singles. [snip] the article continues @ AccountingWeb.com, click here to continue readings.

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