Healthcare Reform Act Items Effective in 2013

In 2013, we will see the following become effective in the Healthcare Reform Act:

  • A 2.3% excise tax on the initial sale of medical devices by the manufacturer, producer or importer.  This tax affects hospitals and other organizations purchasing supplies and equipment.1
  • Certain health insurance companies will face limitations on the amount that can be deducted for executive compensation.2  Also physician performance information3 will be publicly reported for consumers to use in making decisions about their health care.4
  • A 3.8% Medicare tax on net investment income referred as “Medicare tax on unearned income” (MTUI) if modified adjusted gross income (MAGI) exceeds $200,000 (or $250,000 for joint filers (MFJ) and $125,000 for married filing separately (MFS)).
  • A .9% increase to the current 1.45% (2.35% total) in Medicare taxes referred as “Medicare earned income increase” (MEII) on earned income (including net self-employment income) in excess of $200,000 (or $250,000 MFJ or $125,000 MFS).
    • For taxpayers with MAGI amounts high enough to trigger the 3.8% “(MTUI), the new Medicare tax applies to the lesser of:
      • The amount of net investment income, or
      • The amount of MAGI in excess of the $200,000 threshold (or $250,000 for MFJ  or $125,000 for MFS).
    • ‘Net investment income” is composed of the following amounts, less any otherwise deductible expenses properly attributable to these items.
      • Gross income from interest, dividends, annuities, royalties and rents unless such income is received in the ordinary course of a trade or business
      • Other gross income from any passive trade or business
      • Net realized gain arising from the disposition of property other than property held in a trade or business.
    • Net investment income excludes the following:
      • Income from IRAs, pensions, §401(k) plan, and other qualified plans
      • Interest from tax-exempt bonds
      • Veteran’s benefits
      • Gain from the sale of a principal residence up to the $250,000/$500,000 §121 limits5
    • For purposes of the MTUI, MAGI is calculated by increasing adjusted gross income (AGI) by any amount that was deducted under the foreign earned income or housing exclusion provided by IRC §911.6
  • Flexible Savings Plans (FSA) plans must have a written amendment prohibiting more than $2,500 in contributions.7
  • Qualified medical expenses are subject to new 10% AGI threshold which replaces previous 7.5% threshold.8  This is an itemized medical expense rules change.
  • Employer deduction for expenses allocable to Medicare Part D subsidy is repealed.9  Thus, employers lose the deduction for retiree prescription drug plans.

If you would like to learn more about this tax strategy, please call Susan at 847.895.9880.

1 See HCERA §1405.

2 IRC §162(m)(6).

3 PPACA §10331.

4 Information on hospitals, physicians and other healthcare providers will be available at www.healthcare.gov. Some basic information is already available on this website.

5 Joint Committee on Taxation report JCX-18-10, March 23, 2010, Technical Explanation of the Revenue Provisions of the “Reconciliation Act of 2010” as Amended, in Combination with the “Patient Protection and Affordable Care Act..”

6 IRC §1411 (d)(1).

7 IRC§12(i.

8 IRC§213(a)

9.IRC §139A repealed.