Saturday, November 16, 2013

How Obamacare will affect your federal tax return.

Politics aside, the Affordable Care Act could affect your federal taxes this year and in years to come.
The law’s tax implications aren’t as large as when President Ronald Reagan rewrote the tax code, but they are significant. Historically, I would compare it to when President Carter implemented the windfall profit tax. People don’t understand that there are tax implications.
The two biggest changes are the penalty for not buying insurance and the additional tax, called a Medicare surtax, starting on wealthier households.
If you don’t buy insurance for next year, the penalty is relatively small — $95 per adult and half that per child.
A family of four with a $54,500 income would have a $272 penalty in 2013. But by 2016, that penalty will increase to $2,085. Many families are dependent on their tax refund, and the penalty will be deducted from that.
For those with much higher incomes this year ($250,000 in adjusted gross income for a married couple) the Medicare surtax will add a tax of 3.8 percent on net investment income and 0.9 percent on compensation.
That’s a big deal from a tax preparation standpoint. Many who are getting taxed may not be paying enough in terms of withholding now and will owe that tax when they file.
One possible way to lower your income and avoid the tax is to invest in a Roth IRA or convert a regular individual retirement account to a Roth IRA.
Some employees are also having to make health insurance decisions for the first time if their employer drops coverage and pushes them to the new federal healthcare exchange.
A lot of people are afraid because they haven’t had to make that decision before and are confused about the subject. A lot of education is required.
Many are also unaware that they are eligible for tax credits to help pay insurance premiums.
The income levels are pretty high for the credit. It goes up to 400 percent of the poverty level, which can mean a modified gross income in the $90,000s for a family of four.
The tax credit is based on estimated income.
If your taxable income goes up when you file in 2015, you may have to refund the subsidy you got in 2014.




Read more here: http://www.star-telegram.com/2013/11/15/5339658/how-obamacare-will-affect-your.html?rh=1#storylink=cpy

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