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Small Business Employee Benefits and HR Blog

New Health Insurance Reform Related Taxes in 2013

Regardless of the fiscaca health insurance taxesal cliff, Americans will be subject to the following tax changes in 2013 as a result of the Affordable Care Act (ACA).  This article highlights some of the key changes for 2013.

Additional 0.9% Medicare Tax

Effective January 1, 2013, the Medicare payroll tax will increase 0.9% on wages over $200,000 for individuals and $250,000 for joint filiers. An employer is responsible for withholding the additional tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. The IRS and the Treasury Department have issued proposed regulations on the Additional Medicare Tax. For additional information on the Additional Medicare Tax, see the IRS questions and answers.

Net 3.8% Investment Income Tax

Effective January 1, 2013, high-income earners will be subject to an additional 3.8% Net Investment Income Tax on income from investments, including interest, dividends, and capital gains. The IRS and the Treasury Department have issued proposed regulations on the Net Investment Income Tax. For additional information on the Net Investment Income Tax, see the IRS questions and answers.

2.5% Increase in Income Threshold for Medical Expense Deductions

Effective January 1, 2013, unreimbursed medical expenses will be deductible by taxpayers under age 65 only to the extent they exceed 10% of adjusted gross income (AGI) for the tax year. This means that, before you can deduct medical expenses, the total must exceed 10% of the adjusted gross income. In 2012, the baseline for medical expenses deduction was 7.5% of the adjusted gross income. 

$2,500 Limit on Annual Flexible Spending Account (FSA) Contributions 

Effective January 1, 2013, pre-tax contributions to flexible spending accounts (FSAs) will be limited to $2,500. Health Reimbursement Arrangements (HRAs) are not subject to this limit.

$500,000 Deduction Limitation for Compensation Paid by Certain Health Insurance Providers

Effective January 1st, 2013, the Affordable Care Act limits the compensation deduction (in excess of $500,000) available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. Initial guidance on the application of this provision can be found in Notice 2011-2.

2.3% Medical Device Excise Tax

Effective January 1, 2013, a 2.3% excise tax applies to sales of taxable medical devices intended for humans. The IRS and the Treasury Department have issued final regulations on the new tax that manufacturers and importers will pay on their sales of certain medical devices starting in 2013. The IRS and the Treasury Department also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax. Additional information is available on the Medical Device Excise Tax page and Medical Device Excise Tax FAQs.