The recently signed health care legislation has an
official name, but you probably think of it simply as health care
reform. And now that it's law, you may be wondering what tax changes
are in store.
Here's a
recap of some rules included in the two health care bills that will
affect your individual and business tax returns.
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BUSINESS TAX CREDIT. Starting this year, a new federal tax credit
available when you provide health care insurance for qualified
workers. In general, the credit applies when you have no more than
25 employees earning average wages of $50,000 or less. The
maximum credit is 35% of the premiums you pay.
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ADOPTION CREDIT. For 2010, you'll be able to claim an increased
adoption credit on your personal return. The credit is increased
by $1,000 (to $13,170) and is refundable. Also, the credit is extended
through 2011.
* CHANGES
TO HEALTH SAVINGS PLANS. In 2011, over-the-counter medications will
no longer be considered qualified medical expenses for
health savings plans such as HSAs, FSAs, and HRAs.
Also, penalties for nonqualified withdrawals will
increase. The maximum contribution you can make to FSAs will
be limited to $2,500 starting in 2013.
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INCREASED MEDICARE TAX. A two-part change affects individual tax
returns in 2013.
If you're
married, filing jointly, and have income of more than $250,000
($200,000 when you're single), a 3.8% Medicare tax may be assessed
on your unearned income. Unearned income includes dividends,
interest, royalties, and rents.
In addition, when your earned
income is greater than $250,000 (for married filing jointly) a .9%
increase in Medicare tax will apply. The income threshold
is $200,000 when you're single.
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MODIFICATION OF MEDICAL EXPENSE ITEMIZED DEDUCTION. Starting
in 2013, in order to claim an itemized deduction on your personal
return when you're under age 65, your unreimbursed medical
expenses will need to exceed 10% of your adjusted gross income.
The current threshold is 7.5%.
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PENALTIES FOR NOT PROVIDING HEALTH CARE TO EMPLOYEES. A penalty
for failure to provide minimum essential health coverage to your
employees takes effect in 2014. The penalty applies when you have
50 or more full-time employees.
