Many people are still confused by the actual provisions of the act and how it will affect them.  This article will explain some of the provisions, specifically targeting the provisions affecting individual taxpayers.

Net Investment Income Tax

This is a 3.8% tax on investment income for individuals with income in excess of the statutory threshold amounts.

Investment income has been defined as interest, dividends, capital gains, rental and royalty income, non-qualified annuities and business income from activities that are passive activities to the taxpayer. This list, while not necessarily all inclusive, covers the major income items subject to the tax.

The statutory minimum income levels for application of this tax are $250,000 for individuals filing jointly and for qualifying widow(er)s with a dependent child.  For individuals that are married but filing separately the threshold is $125,000.  The threshold is $200,000 for individuals filing either as single or head of household.

Additional Medicare Tax

This is a 0.9% additional Medicare tax on mainly wages and self-employment income that exceeds the statutory threshold amounts.  The threshold amounts are identical to the net investment income tax thresholds with the exception of qualifying widow(er)s. The threshold for qualifying widow(er)s is $200,000.

Itemized Deduction for Medical Expenses

Beginning in 2013 in order for unreimbursed medical expenses to be a deduction on an individual’s tax return, the expenses must exceed10% of the taxpayers adjusted gross income (AGI).  This is up from the 7.5% that has been in place.  There is an exception for individuals 65 and over. For these individuals they may continue to use the 7.5% threshold until the end of 2016.

Individual Shared Responsibility Provision

This provision mandates that for each month after December, 2013 an individual must either obtain minimum essential coverage, qualify for an exemption or pay a penalty. The requirements of essential coverage can be met by enrolling in one of the following:

• Employer-sponsored coverage (including COBRA and retiree coverage)
• Coverage purchased in the individual market
• Medicare coverage (including Medicare Advantage)
• Medicaid coverage
• Children’s Health Insurance Program (CHIP) coverage
• Certain types of veteran’s health coverage
• TRICARE

The exemptions are:

• Religious conscience
• Health care sharing ministry
• Indian tribes
• No filing requirement
• Short coverage gap
• Hardship
• Unaffordable coverage options
• Incarceration
• Not lawfully present

The penalty will be the greater of a fixed dollar amount ($95 per individual in 2014, $325 in 2015 and $695 in 2016, limited to 300 percent in each year) or an excess income amount. The excess income amount calculation is beyond the scope of this article, however please note that the penalty will start at $285 per family ($95 multiplied by 300%) in 2014 and will be $2,085 by 2016.  Again this is the minimum (unless an exception applies) but it would most likely be significantly more.

Conclusion

This article scratches the surface of the provisions of the Affordable Care Act.  As always I strongly urge that you consult a tax professional when doing any tax planning.