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The Nuts and Bolts of Obamacare

09.05.2012 by Kevin Mercadante //

The Patient Protection and Affordable Care Act (PPACA) – known as “Obamacare” – was passed into law on March 23, 2010, and its main provisions were recently upheld by the Supreme Court.

The act is the largest and most sweeping healthcare reform ever enacted in the United States and will affect almost every aspect of the industry.

The act contains thousands of provisions that began to be implemented when the bill was passed and will continue to come into law between now and 2020. There are more provisions than can be covered in one article, but here is a summary of the most significant ones, and only those that relate directly to the general public. These provisions are complicated so the descriptions below will be brief.

Healthcare Coverage Provisions

These changes have the most effect on benefits, beneficiaries, exclusions and limitations as they exist in typical modern health plans.

Lifetime benefits. Effective this year, and applying only to new policies, insurance companies can no longer impose lifetime limits on “essential benefits”, like hospital stays.

Dependent coverage. Your children can stay on your health insurance plan up until they turn 26, even if they don’t live with you, aren’t in school, or might be married. This provision is in effect right now.

Dropping coverage. Insurance companies can no longer terminate coverage on patients when they get sick. This is also already in effect.

Preventative care services. Beginning August 1, 2012, all new plans are required to cover certain preventive services like mammograms and colonoscopies that won’t be subject to co-payments, deductibles and co-insurance provisions. Beginning in 2018 this requirement will extend to all existing insurance plans, and will also require check-ups without co-payments.

Pre-existing conditions. As of January 1, 2014, insurance companies will not only be prohibited from turning down customers with pre-existing medical conditions, but they won’t be able to charge higher premiums either. Gender based premium differences will also disappear. The only listed exception to the rule are smokers.

Deductibles. Beginning January 1, 2014, and only on employer sponsored plans, there will be a maximum deductible of $2,000 for single coverage, and $4,000 for other plans.

Subsidies

There are actually several subsidy provisions, but this one is the most sweeping.

Health insurance exchanges. As of January 1, 2014, health insurance exchanges will be set up by the individual states to subsidize insurance premiums for millions of people based on household income as a percentage of the federal poverty level. Insurance premiums will be capped at certain levels based on income relative to the poverty level, with the highest subsidies going to those households earning less than 133% of the poverty level, and the lowest going to those earning up to 400% of it. This is a complex provision, but it appears that the subsidy will come in the form of a refundable tax credit, which means the recipient will get the credit even if they pay no income taxes.

New Taxes

There are many tax changes pursuant to the act, but here are the ones that are most relevant to the largest number of people.

Payroll reporting. For 2012 and beyond, employers must report on your W2 the value of health insurance benefits they provided during the year. There are no apparent tax consequences to this – yet!

Medical deductions for income tax purposes. Currently, there’s a limitation applied to the deductibility of medical costs for income taxes; you must first reduce the amount of your medical expenses by 7.5% of your adjusted gross income and deduct the difference. Beginning January 1, 2014 the 7.5% reduction will rise to 10% of adjusted gross income.

Translation: fewer people will be able to deduct medical expenses in the near future.

Direct taxes. As of January 1, 2013 there will be an additional tax of .9% on earned incomes above $250,000 for married couples filing joint, and $200,000 for singles. The Medicare tax is also being increased. An additional 3.8% Medicare tax will apply on “unearned income, specifically the lesser of net investment income or the amount by which adjusted gross income exceeds $250,000 for married filing joint, or $200,000 for singles.”

“Cadillac insurance plans”. High cost insurance plans—defined as those costing in excess of $27,500 for families and $10,200 for individuals—will have an excise tax imposed on them beginning in 2018. The tax rate: 40%.

Penalties

In addition to new taxes, the bill imposes penalties.

Penalty for non-coverage. As of January 1, 2014 the act will impose an annual penalty on those who don’t have health insurance plans. The penalty will start out as the higher of $95 or 1% of gross income, but rising in 2016 to a minimum of $695 for indivduals and $2,085 for married filing joint, or 2.5% of income. This penalty was a major part of the recent Supreme Court case on the act, and was upheld with the logic that Congress has the authority to “levy the penalty as a tax”, rather than an attempt to force people to get insurance coverage.

Employer penalties. Beginning January 1, 2014, employers with more than 50 employees will be subject to a penalty of $2,000 per employee if the employer does not provide health insurance coverage for full-time employees.

Other provisions

Health insurance for Congress. Beginning in 2014, not only members of Congress but also their employees will be moved out of the Federal Employees Health Benefits Program, and into a plan provided under the act. In effect, Congress will be subject to the same health care plans the rest of us are.

Medicare Part D. By 2020 Medicare Part D for prescription drug coverage will be ended.

There are numerous other provisions that will affect both Medicare and Medicaid that are too complex to discuss here. Due to their complex nature, these provisions has been simplified – this is a summary presentation of the act, not a line-by-line breakdown.

Also keep in mind that the bill is still moving through the system and will be amended as it does. Any of these provisions could be modified, reduced, expanded or even canceled before, during or after implementation.

What are your thoughts about Obamacare?

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Categories // Insurance, Taxes Tags // healthcare

File A Tax Extension – Tax Year 2011

04.18.2012 by Matt Jabs //

Are you running behind on filing your taxes and afraid you will not be able to make the dead line?  Don’t worry… I have two pieces of good news for you.

Tax extension info for tax year 2011

The first bit of good news is that the tax deadline for 2011 returns has been moved from the traditional date of April 16th to an extended deadline of April 17th – giving you an extra day to get your taxes done.  If you haven’t filed yet, I recommend using TurboTax Online – I’ve been using it for years and love it.  Read my TurboTax Review and don’t forget to check out the 10 most commonly missed tax deductions.

The second bit of good news is that you can easily file tax extensions for free and push your filing deadline back from April 17th, 2012 to October 15th, 2012 giving you an extra 6 months to file!

How to file a tax extension

I recommend one of several ways to file your tax extension.

  1. If you use TurboTax, you can file your tax extension using their online software.
  2. Download IRS form 4868 and mail it in
  3. E-file form 4868 using one of the IRS FreeFile companies.
  4. E-file form 4868 yourself using FreeFile Fillable Forms.

Don’t forget that you still have to pay at least 90% of your actual tax liability by April 17th, 2012 to avoid a late payment penalty. If you don’t know how much you owe then you can estimate, but if you estimate low you may be hit with the penalty, so I strongly advise taking the time to get solid estimate and send it in with your form 4868.

Lastly, be sure to file your request for an automatic extension by the April 17th, 2012 deadline to be eligible – and pay any total tax due by October 15, 2012 to avoid late payment penalties.

I may file an extension this year

Normally I file my tax return in the beginning of February, but for whatever reason have put it off until the last minute this year.  Last night I logged into my TurboTax Online and completed about 80% of my return so I should get it done in time for the April 17th deadline, but if I don’t I’ll simply file an extension and use the extra 6 months.

Are you going to file an extension this year?

*******

Categories // Taxes Tags // extension, irs, Taxes, turbotax

Tax Brackets and Standard Deduction

04.05.2012 by Matt Jabs //

Here we offer the tax brackets and standard deduction information for the tax years 2011 and 2012, along with a few “revolutionary” thoughts on the income tax.

Income tax history and philosophy

Thanks to the 16th Amendment the government can tax income:

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The Bureau of Labor Statistics uses the inflation rates of the Consumer Price Index for All Urban Consumers (CPI-U), along with a host of other statistics, to calculate yearly tax brackets.

Income levels in tax brackets raise each year due to inflation, and inflation over the past year averaged 2.43%.

Inflation is a rise in the general level of prices of goods and services in an economy related to an increase in the volume of currency and resulting in the loss of purchasing power. The rate of decrease in the purchasing power of money is approximately equal to the rate of inflation.

Put another way, as inflation rises, purchasing power (a.k.a. wealth) decreases.

“1913 wasn’t a very good year. 1913 gave us the income tax, the 16th amendment and the IRS.” – Texas Congressman Ron Paul

Before revealing the modern income tax brackets, it’s worth noting that the Supreme Court ruled income taxation unconstitutional in 1895 before the Congress enacted it as law in 1913.

Federal Income Tax Brackets for 2012

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Federal Income Tax Brackets for 2011

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Note: Annual inflation is also used to calculate the standard deduction and personal exemptions.

Standard Deduction and Exemption for 2012

The value of each personal and dependent exemption, available to most taxpayers, is $3,800.

The standard deductions for 2012 are:

  • $5,950 for singles and married individuals filing separately
  • $8,700 for heads of household
  • $11,900 for married couples filing a joint return.

Standard Deduction and Exemption for 2011

The value of each personal and dependent exemption, available to most taxpayers, is $3,700.

The standard deductions for 2011 are:

  • $5,800 for singles and married individuals filing separately
  • $8,500 for heads of household
  • $11,600 for married couples filing a joint return.

Note: These numbers are projected and subject to new tax legislation therefore they could change so be sure to check www.IRS.gov for the latest information before filing taxes.

*******

References

  1. 2012 Consumer Price Index Summary by The Bureau of Labor Statistics
  2. Overview of BLS Statistics on Inflation and Prices by The Bureau of Labor Statistics
  3. Tax Foundation Projects 2012 Tax Parameters by The Tax Foundation
  4. 16th Amendment from The U.S. Government Printing Office
  5. Inflation on Wikipedia
  6. How To Calculate Inflation Rate on Inflationdata.com
  7. Pollock v. Farmers’ Loan & Trust Co. – 157 U.S. 429 (1895) on Justia.com U.S. Supreme Court Center
  8. Publication 501 Exemptions, Standard Deduction, and Filing Information on IRS.gov

Categories // Taxes Tags // economics, inflation, irs

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