Affordable Care Act Provisions Individuals Need to Know

Provisions Effective in 2013 – Medicare Contribution Tax on Investment Income

A Medicare contribution tax on net investment income is imposed on individuals, estates and trusts. Investment income includes interest, dividends, capital gains, taxable annuities, royalties and passive rental income. For an individual, the tax is 3.8% of the lesser of either:

1. Net investment income, or
2. The excess of modified adjusted gross income (MAGI) over the threshold amount. The threshold amount is $250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return, and $200,000 for all others.

Additional Medicare Tax for High Income Individuals

An additional 0.9% Medicare tax will be imposed on the wages of individual taxpayers (including self-employment income) received with respect to employment in excess of:

$250,000 for joint returns;
$125,000 for married taxpayers filing a separate return; and
$200,000 in all other cases

If you are married, filing jointly, and your combined household income is greater than $250,000, anticipate owing an additional 0.9% in Medicare tax on income earned over $250,000.

Limitation on Health Flexible Spending Arrangement (FSA) Reimbursements

The maximum amount available for reimbursement as a pre-tax benefit under a qualified cafeteria plan (health FSA) is limited to $2,500. Previously there were no limits other than those set by the plan.

Medical Expense Deduction Floor Increases to 10%

The AGI threshold for deducting medical expenses increases from 7.5% to 10%. For taxpayers who have reached age 65 by the end of the year, the effective date of this provision is delayed until January 1, 2017.