And They're Off: Major Obamacare Taxes on Their Way!

A couple of weeks ago, I spoke at a gathering of higher-income earners. The bulk of the discussion was a comparison of what this bracket of folks just paid in 2012 vs what they will pay in higher taxes in 2013. Some of those taxes had to do with the implementation of Obamacare and the new taxes associated with it.

However, many do not realize that Obamacare taxes, (levies created to help pay for the legislation) do not only affect high income earners. With the report out yesterday that 42% of Americans don’t realize that Obamacare is the law of the land, it is certain that many also don’t know that there are taxes — besides the “penalty” — that will affect many average Americans.

Say what you will about ATR; however, they have been one of the few organizations who have chronicled continuously since Obamacare was written, the various taxes that will be/have been imposed at various stages in the game during this Obamacare roll-out. From the perspective of a CPA like myself, having a list compiled together is very useful. Now that tax season is over, it is never to early to think about next year.

Below is a summary of new Obamacare taxes just for 2013,. These will affect (and probably shock) many Americans when they file their taxes next year.

Obamacare Surtax on Investment Income: A new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single). This tax hike results in the following top tax rates on investment income:

Capital Gains Dividends Other*
2013+ 23.8% 43.4% 43.4%

*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income. It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans. (Bill: Reconciliation Act; Page: 87-93)

Obamacare Medicare Payroll Tax Increase:

First $200,000, ($250,000 Married) Employer/Employee: 1.45%/1.45%; 2.9% self-employed
All Remaining Wages Employer/Employee: 1.45%/1.45%; 2.9% self employed

First $200,000, ($250,000 Married) Employer/Employee: 1.45%/1.45%; 2.9% self-employed
All Remaining Wages Employer/Employee: 1.45%/2.35%; 3.8% self-employed

(Bill: PPACA, Reconciliation Act; Page: 2,000-2,003; 87-93)

Obamacare Medical Device Tax:
Medical device manufacturers employ 409,000 people in 12,000 plants across the country. Obamacare imposes a new 2.3 percent excise tax on gross sales – even if the company does not earn a profit in a given year. In addition to killing small business jobs and impacting research and development budgets, this will make everything from pacemakers to artificial hips more expensive. (Bill: PPACA; Page: 1,980-1,986)

Obamacare High Medical Bills Tax:
Before Obamacare, Americans facing high medical expenses were allowed a deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. According to the IRS, 10 million families took advantage of this tax deduction in 2009, the latest year of available data. Almost all are middle class. The average taxpayer claiming this deduction earned just over $53,000 annually. ATR estimates that the average income tax increase for the average family claiming this tax benefit will be $200 – $400 per year. To learn more about this tax, click here. (Bill: PPACA; Page: 1,994-1,995)

Obamacare Flexible Spending Account Tax:
The 30 – 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face a new Obamacare cap of $2,500. This will squeeze $13 billion of tax money from Americans over the next ten years. (Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap.) Now, a parent looking to sock away extra money to pay for braces will find themselves quickly hitting this new cap, meaning they would have to pony up some or all of the cost with after-tax dollars.
Needless to say, this tax will especially impact middle class families.

There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. Nationwide there are several million families with special needs children and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax provision will limit the options available to these families. (Bill: PPACA; Page: 2,388-2,389)”

So, while Obama claims he wants the wealthy to “pay their fair share”, he doesn’t tell you that he also expects millions of average-income Americans to do so — in order to pay for Obamacare. Unfortunately for all of us, as I wrote about earlier, Obamacare levies (many of which are still to come after 2014) still won’t pay for all of Obamacare in through 2023.

In that regard, we are certain to expect more taxes in the coming decade. Taxes are the government’s never-ending solution to raise more revenue (though we are on track to raise record revenue this year). How else are we expected to finance this brilliant, sinking ship?

Crossposted at alanjoelny.com