Other Obamacare Tax Increases You May Not Be Aware Of

By Steve Barlotta, CPA

In a blog that I posted last July, I explained in detail the two biggest Obamacare tax increases starting in 2013. The first one is a .9% Medicare surtax on earned incomes. It applies to joint taxpayers with wages above $250,000, and single filers with wages over $200,000. The second surtax, which is a 3.8% Medicare payroll tax on investment income, applies to joint taxpayers with modified adjusted gross income (MAGI) above $250,000 and single filers with MAGI over $200,000. But, there are 3 other significant tax increases                                                                                   that go in to effect on January 1, 2013.

Medical Device Tax.  Obamacare imposes a new 2.3 percent excise tax on the gross sales of medical device manufacturers; regardless if the company earns a profit for that year. It is estimated that medical device manufacturers employ over 400,000 people in the United States. Critics of this tax increase say it will impact small business jobs as well as hamper efforts in the areas of research and development. Medical device manufacturers make everything from pacemakers, stents and artificial joints. It’s hard to imagine that this tax won’t increase the price of overall healthcare as these manufacturers will most likely pass these costs on to the consumer.

Cap on Flexible Spending Accounts. Millions of Americans use Flexible Spending Accounts (FSA) through their jobs to pay for their family’s basic medical needs with pre-tax dollars. Effective January 1, 2013, Obamacare will cap the use of these accounts at $2,500 per year. Currently, these accounts are not limited under federal law. Some recent articles have pointed out that FSA owners who have special needs children will be adversely affected by this new cap. Many families with special needs children use FSAs to pay for special needs education. Costs associated with educating and caring for special needs children can easily exceed $10,000 per year.

Medical Itemized Deductions. Under current tax law, Americans who incurred significant medical expenses during the year are allowed a deduction to the extent that those expenses exceed 7.5 percent of their adjusted gross income (AGI). Under the Obamacare tax increase, this threshold is increased to 10 percent of AGI. The one group that will be heavily impacted by this tax increase are retirees or near retirees with modest incomes but hefty medical bills.