Tuesday, March 23, 2010
Posted 2 p.m. Eastern
So how are you feeling today? Better or worse now that health care reform has been signed into law by Obama?
About the same? Yeah, me too. That's because despite all the histrionics, the reform law doesn't change much, especially not immediately.
There's no public option. There are no (and never were) any death panels. And while there is a requirement we all have insurance, that's years down the road.
So unless you've got some tea parties to attend, life is going to go on pretty much the same as before for most of us for the next few years.
That said, as a self-employed person with a pre-existing condition who's gone without health insurance a couple times, I wanted to see what the new law might mean for me personally.
And as a tax geek, I went looking for revenue provisions that will affect our bottom lines when it comes to how much we owe the IRS.
The Tax Foundation put together a timeline showing the implementation dates of the new health care law's various tax provisions. Another timeline comes from the three House committees that worked on the bill and offers a bit more explanation of the upcoming laws.
As you can imagine by its cost and years for all reforms to be in place, there are a lot of tax changes. But I found 10 major tax changes that will affect individuals.
To spare all of us some time and brain cells, I'm dividing the list, with a synopsis of each item, into two posts based when they take effect.
So here goes the first five, appearing in the tax code in 2010 and 2011.
Tanning tax: Yep, we're starting with a real important tax provision. But it also kicks in soon, on July 1 to be exact.
Smack dab in the middle of a summer day, a 10 percent tax will start showing up on bills for indoor tanning services. This wouldn't affect spray tans. The new tax applies to services that use an "electronic product with one or more ultraviolet lamps to induce skin tanning."
The tanning tax was substituted when plastic surgeons were able to convince Congress to remove a proposed tax on cosmetic surgery. The old joke is that Washington, D.C., is Hollywood for ugly people, so maybe the doctors were able to trade some nips and tucks for the excision of the original tax.
Adoption tax credit: This is a nice tax benefit for folks looking to grow their families via adoption; this Bankrate tax tip provides details on how the adoption credit could help cut your 2009 tax bill that's due in just a few weeks.
But the credit and associated amount of income excluded from taxable income when an employer provides adoption assistance to workers was set to expire at the end of 2010.
That's no longer a problem. Health care reform extends the credit through 2011. Even better, it increases the amount of the credit and the income exclusion $1,000, making the potential 2010 credit amount $13,150. Best of all, the credit now is refundable, meaning it could get eligible adoptive parents a tax refund.
Health coverage costs on W-2s: Companies keep track of what benefits they provide their employees cost them. Now you'll know precisely what your workplace medical is worth when you get your annual wage statement. Starting in 2011, employers will have to disclose the value of that benefit on each employee's annual Form W-2.
Standardized medical expenses definition: With the advent of medical flexible savings accounts, or FSAs, some treatments counted as medical expenses for reimbursement purposes. But beginning in 2011, the definition of qualified medical expenses for FSAs and other similar workplace plans will be the same as used by the IRS in determining whether a cost is deductible as an itemized medical expense. Over-the-counter medicines will still count for FSA et al. coverage, but only if you get a prescription from your doctor for that Nyquil, etc.
Tougher tax for nonmedical withdrawals: If you decide in 2011 to take money out of a health savings accounts, known as HSAs, or Archer medical savings accounts, known as MSAs, to pay for something other than a qualified medical expense, it will cost you more. The additional tax for HSA withdrawals by folks younger than 65 will go from 10 percent to 20 percent. The additional tax for nonmedical Archer MSA withdrawals will increase from 15 percent to 20 percent.
Whew! Now you begin to understand why this took more than a year to finish.
But we don't need that long. We'll finish up with the other five health care reform tax highlights soon. Until then, stay well!
Read more tax blogs.