By John Williams
Obamacare is not cheap. We all know that. And many of us believe that the architects of Obamacare used fuzzy math in their financial projections.
Nevertheless, it is important to understand how the statute purports to fund Obamacare. Just what are the new taxes and fees that will raise the revenue to pay for this new law?
The Affordable Care Act (ACA) imposes several new taxes and fees:
1. Tanning Services. Beginning July 1, 2010, there has been a 10% excise tax on indoor tanning services provided at tanning salons. This tax is generally passed on to those who use these services. There is an exception for physical fitness facilities that offer tanning as an incidental services. Because tanning is thought to contribute to skin cancer, this is a type of “sin tax.”
2. Medical Devices. Beginning January 1, 2013, there has been an excise tax of 2.3% of the sale price of most medical devices, to be paid by the manufacturer or importer of the medical device. The medical devices subject to this tax are those devices intended for human use which are listed by the Food and Drug Administration (FDA) as medical devices. Certain types of medical devices generally purchased by the public at retail (such as eyeglasses, contact lens, and hearing aids) are not subject to this tax. The FDA website states that medical devices range from simple tongue depressors and bedpans to complex programmable pacemakers and laser surgical devices. The range of medical devices subject to this tax is quite broad.
3. Additional Medicare Tax. Beginning this year, an individual earning more than $200,000 a year and married couples earning more than $250,000 a year must pay an additional 0.9% Medicare tax on the portion of the person’s income which exceeds that threshold amount. Employers are responsible for withholding this tax from the amount of wages paid to an employee which exceeds this threshold. There is no employer match, however, for the additional Medicare tax. Persons who earn money from different sources will have to determine the amount of additional Medicare tax they owe if their earnings exceed the threshold amount.
4. Net Investment Income Tax. Beginning this year, individuals, estates, and trusts that have investment income (i.e., dividends and interest from stocks and bonds, capital gains distributions from mutual funds, and capital gains from the sale of investment real estate) which exceeds certain amounts must pay a tax of 3.8% of their net investment income. Individuals whose total income (wages plus investment income) exceeds $200,000 a year, and married couples whose total income exceeds $250,000 a year, will be subject to this tax, which is calculated by multiplying 3.8% times the portion of the investment income that exceeds the threshold amount.
5. Individual Shared Responsibility Payments. These payments are a by-product of the requirement that every American (with few exceptions) must have health insurance. Beginning in 2014, a person who does not have minimum health insurance coverage must pay a specified amount to the IRS when filing his/her federal income tax return. The amount of the Shared Responsibility Payment in 2014 will be $95 or 1% of the person’s income (whichever is greater). By 2016, it rises to $695 or 2.5% of the person’s income (whichever is greater).
6. Family Shared Responsibility Payments. Beginning in 2014, the penalty for having a child or other dependent who does not have health insurance is $47.50 (up to a maximum of $285 per family) or 1% of family income (whichever is greater). This penalty will rise to $347.50 per child (up to a maximum of $2,085 per family) or 2.5% of family income (whichever is greater).
7. Annual Fee on Insurers. The ACA requires all companies that provide health insurance coverage to pay an annual fee, beginning in 2014. The regulations which explain how a company’s fee will be calculated are in the process of being finalized.
8. Branded Prescription Pharmaceutical Manufacturers and Importers. Beginning in 2011 the ACA has imposed an annual fee on manufacturers and importers of brand name pharmaceuticals. Each year the IRS publishes rules explaining how this fee will be calculated for that year.
9. Employer Shared Responsibility Payments. Certain employers must provide health insurance to their employees or make a shared responsibility payment. The rules to implement this requirement are being developed. The implementation of this provision was recently deferred to 2015 by the Obama Administration.
10. Medical Expense Deduction. The ACA sets a higher threshold for the percent of a person’s adjusted gross income that must be exceeded by that person’s medical expenses before these medical expenses may be used as a deduction on the person’s income tax form. The threshold is increased from 7.5% to 10% of the person’s adjusted gross income.
Detailed information about these taxes and fees may be found at:
This article is the sixth in a series of articles about the Affordable Care Act. See below for the previous articles: