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How Obamacare Changed Your Taxes

The Affordable Care Act, colloquially known as Obamacare, completely changed how people get health care. With a big expansion of health insurance through mandatory coverage requirements, tens of millions of uninsured Americans will find themselves needing to get enrolled.

Yet the impact of Obamacare goes beyond the health care industry. New tax provisions associated with the Affordable Care Act have gone into effect this year, and they could have a big impact on your taxes both in 2013 and in future years.

What Obamacare did to your taxes
To find out more about exactly what tax provisions lawmakers embedded into the broader Obamacare legislation, the first resource I turned to was the Fool's Motley Fool ONE Tax Center. Once you get your copy, you'll find on page five of our exclusive 2013 tax report that Obamacare made several new tax-related changes that will have an impact on taxpayers of all income levels.

Perhaps the biggest change in the law expanded the tax that workers currently pay for Medicare to cover both higher amounts and different types of income. Until this year, workers paid 1.45% of their wages in Medicare withholding taxes, with employers paying another 1.45% out of their own pockets. Self-employed individuals paid the combined 2.9% on their own. Although the amount of wages subject to Medicare tax used to be limited in the same way as Social Security withholding, that changed in 1991, and by 1994, the limits on wages subject to Medicare taxation were removed entirely.

Going forward, though, Obamacare imposes additional Medicare taxes on certain individuals. In particular, two groups will be affected:

  • Joint filers with wages or other work-related earnings greater than $250,000 and singles earning more than $200,000 will have to pay an additional 0.9 percentage points in Medicare tax, bringing their total to 2.35% for employees or 3.8% for self-employed workers. Employers are supposed to handle this requirement in their withholding, but for two-earner couples, that may prove impossible, as your employer will have no knowledge of what your spouse earns.
  • Those with total adjusted gross incomes of more than $250,000 for joint filers, or $200,000 for singles, will have Medicare taxes imposed on their investment income as well. On whatever amount of investments exceeds the $250,000 gross-income level, you'll have to pay the full 3.8% surtax yourself.

The net effect on high-income earners will be to bring total top tax brackets to 43.4% -- the 39.6% regular tax amount plus the 3.8% Medicare tax.

Hitting lower-income workers
Those who earn less than the $200,000 and $250,000 thresholds shouldn't assume that their taxes will be unaffected by Obamacare. New limitations on flexible spending arrangements will hit taxpayers of all income levels, limiting the amount you can set aside tax-free in a flex plan to $2,500 per year. Previously, there was no technical upper limit, although most employers imposed a $5,000 maximum. But for those who have high levels of predictable medical expenses, the forced reduction in flex-plan use could cost you hundreds of dollars in extra income, Social Security withholding, and Medicare withholding taxes.

Moreover, those who rely on deducting medical expenses won't be able to get as big a tax benefit from them. Obamacare raised the floor on itemized medical expenses from 7.5% of gross income to 10%. That may not sound like much, but it could reduce your deduction by thousands of dollars and thereby increase your tax bill substantially.

Will you get any benefit?
The question, of course, is whether Obamacare's benefit will exceed the extra taxes you'll pay. The jury's still out on that question, but one reason to be somewhat skeptical is the extent to which health insurance stocks have risen lately. Industry giants UnitedHealth (NYSE: UNH  ) and Humana (NYSE: HUM  ) haven't seen big share-price advances, in part because of proposed cuts to Medicare Advantage plans that will affect them particularly harshly. Yet with less exposure to the Medicare Advantage market, peers Aetna (NYSE: AET  ) and Cigna (NYSE: CI  ) have risen to 52-week highs on expectations that they'll reap the benefits of greater numbers of insured people. That in turn suggests that fewer of those benefits will be left for newly covered individuals themselves.

Regardless, as you consider your taxes this year, don't forget about the new Obamacare provisions. Planning for them now could save you from a big headache down the road.

Obamacare's tax liability is just one of many complicated tax provisions you need to understand better. To get all the answers you need, be sure to check out our Motley Fool ONE Tax Center. It's an extensive report put together by Fool financial expert Robert Brokamp, and it can be yours free. With tax season winding down, this limited-time offer won't last long, so click here right now and claim this valuable tax resource today!


Read/Post Comments (27) | Recommend This Article (31)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 15, 2013, at 4:13 PM, GhostdogWarrior wrote:

    "Obamacare raised the floor on itemized medical expenses from 7.5% of gross income to 10%."

    Nice kick in the teeth to those who have to pay for their own insurance like all the self-employed people who are trying to get by and restart this economy because of this presidents utter incomprehension of anything involving math.

    He didnt cause the mess but he sure is making it the worst recovery on 80 years. Move over Japan we need a spot on your deflationary couch sometime over the next few years

  • Report this Comment On March 15, 2013, at 4:15 PM, mastedon2 wrote:

    Obama knows exactly what he is doing. Destroy America, make people completely dependent on an oversized government, and promote and give money to support our national enemies.

    Some are far too forgiving in this day and age, which will be our downfall. There is more b.s. in Obamacare than this article can touch..

    Too bad we were usurped by an audience more concerned with skin color than qualifications...

  • Report this Comment On March 15, 2013, at 4:17 PM, suckerfree wrote:

    "In other words, the ad is bogus. And so, apparently, is The Motley Fool."

    http://www.itworld.com/mobile-wireless/249916/using-steve-jo...

  • Report this Comment On March 15, 2013, at 4:25 PM, airjackie wrote:

    It would be next if Journalist read the Obamacare or Romneycare before putting Americans in fear. The plan is the same as the one in Mass. and if Mitt Romney had won the election in 2008 we would already have the Universal Health Care Plan. The plan formed by President Nixon and supported by Reagan/Bush. It was said to be as historial as FDR's New Deal and Social Securiity. Mitt used the plan as a test in Mass. and saw it continues to be successful. Now because of politics GOP are against it. Some insane Law Makers are saying the US Supreme Court Justices don't know the Law or the Constitution.

  • Report this Comment On March 15, 2013, at 4:34 PM, nmwander wrote:

    The Motley Fool is misrepresenting the results of the Affordable Health Care Act.

    #1...there's no actualy Health CARE in it.

    The entire bill addresses Health INSURANCE, and the resulting fees, taxes, revenues, and reporting structures it takes to manage everyone;'s Insurance.

    #2...Its official. Just like Michelle Bachman and those crazy tea-baggers have been saying....the Supreme Court agrees....."Its a Tax."

    #3...This Act does NOT change how actual Health Care is delivered.....its still done the same way as that earlier Teddy Kennedy gem of legislation.....The Kennedy Health Maintainance Organization Act of 1974!!

  • Report this Comment On March 15, 2013, at 4:35 PM, allenjthompsonjr wrote:

    Hmm - MA is no success story. Every man woman & child is in debt 11,500 dollars - we are near the top in terms of per person debt - a big reason is the universal healthcare. Its the biggest scam going - its not based on assets - its based on income - so you have tons of people gaming the system - i personally know people who have moved to MA (no residency waiting period) signed on to free healthcare and subsidized housing. We provide limo rides for drug addicts to methodone clinics. I would have no problem with universal healthcare if we could all enjoy it. I have to pay for my crap insurance which doesnt cover much, co-pays, etc - while my tax dollars buy better health insurance for the societal leeches who contribute nothing.

  • Report this Comment On March 15, 2013, at 4:56 PM, bugmenot wrote:

    The end of the United States is at hand.

    Few believe this now, but that will rapidly change in the coming months and years.

    A bloody Civil War is almost a foregone conclusion. Really only a matter of what the trigger event will be that kicks it off.

    A wise person would prepare themselves with guns, gold, and food supplies. Even then it may not be possible to survive.

    The United States had a good run, but it is over now, except for the shooting.

  • Report this Comment On March 15, 2013, at 5:05 PM, warhog3374 wrote:

    Wait until every liberal moron realized they have to pay more for coverage they dont need & get less in services, maybe then they will wake up to this piece of unconstitutional junk that this marxist have passed.

    If you have no teeth, u still will have to buy dental coverage. why? because there are so many that will need that coverage, & ur paying their share.

    Small businesses will have to layoff low skill workers, just to make ends meet.

    20 brand new taxes for the middleclass, just to cover costs in this massive tax bill.

  • Report this Comment On March 15, 2013, at 5:40 PM, wscarp1 wrote:

    this article distorts the purpose and the effects expected of the affordable health care act. This law has already provided an avenue to healthcare to children who can now stay on their parents' insurance until age 26. Also, the Medicare donut hole is shrinking due to this law.

    The purpose of the law is to enable 30 million Americans who cannot now afford and/or obtain health insurance to be able to do so.

    According to the Institute of Medicine, this will save at least 20,000 lives EVERY YEAR. I think this is a bargain. However, it is only the beginning of reform of the health care system.

  • Report this Comment On March 15, 2013, at 6:04 PM, american2 wrote:

    Obama has been a disaster to this nation and our economy. Saddest thing is, I think he is doing it on purpose. Educate yourselves on "UN Agenda 21." The plan is to make America a 3rd world country, chase us all out of the country and suburbs by limiting transportation, raising taxes, increasing gas prices, etc, and squish us all into cities, where we will all have a 55% higher risk of developing psychizophrenia (sorry, don't know the spelling). If you don't believe me on either count, research it yourself.

  • Report this Comment On March 15, 2013, at 6:09 PM, rudydog1 wrote:

    For all the fools who think the world will end - you have already been paying for those who are uninsured and show up at the E.R. via your local government taxes and inflated insurance premiums. Here in Los Angeles, that is 4 BILLION dollars the LA county pays to support the county hospital system that treats the uninsured. So in effect, Obamacare is moving this burden off the local governments and onto Employers & the Federal Government. The big question is whether or not this will be more economical than the current system. Since the insurance companies have a profit motive, we may see movement away from the ER to preventative treatment for these prior un-insured people, thus saving money. We will see.

  • Report this Comment On March 15, 2013, at 6:12 PM, revo23 wrote:

    Tell the people, the # chart they will be put on.

    The high your # the less care you receive.

    Hope you don't have any health problems.

    Government decides your fate, not your doctor or insurace.

  • Report this Comment On March 15, 2013, at 7:11 PM, Tiberious2013 wrote:

    I dont get it. If this doesnt give people "free" health care...why do it at all?

    Is it really just another way for government to sock it to us all?

    What a crock .

  • Report this Comment On March 15, 2013, at 7:14 PM, tristinstone wrote:

    Obama is the worst excuse of a president I have ever seen! his only agenda is to make people on welfare equal to rich people??? I dont understand this, but I think Obama is jealous of white people? By 2016 our deficit is going to be more than 21-22 trillion, and your obama wont even blink an eye! this man is insane! and should have been impeached in 2009. but all you einsteins voted for him, now dont cry when your gas is $7.00 a gallon, milk $7.00 a gallon, bread 5.00 a loaf, dozen eggs $6.00, Remember people, those of you who chose to live on gov. handouts think that voting for this con-artist was a good deal? you will be hit first with the painful tax increases!

  • Report this Comment On March 15, 2013, at 9:41 PM, Linpob1415 wrote:

    This is too respond to wscarp1's statement made about how "the law has already provided an avenue to healthcare to children who can now stay on their parents' insurance until age 26"... When a child turns 18 they become an adult. They get they're first job, if they haven't had one yet; they study in they're senior year of high school or first year of college; they drive, probably in they're 3rd of that if they started early. They may even own a car and pay they're own insurance by 18, they may own a small business. They have debit cards and bank accounts, cell phone accounts and are being responsible young adults... children are not responsible. If the law states that "children" up to 26 years old may stay on their parent's insurance, then the law (to me) implies that no one under the age of 26 is an adult.

    Obamacare is simply a terrible law, its too comprehensive, massive, complicated, and makes statements like "children up to 26 years old.

    Obama, could have simply made a few small laws: to say, no insurance company may cancel health insurance except for lack of payment, no other reason.

    Another law would allow insurance consumers to purchase insurance from insurance companies in other states.

    And finally the Health Care Savings accounts should have been promoted heavily, instead of condemned the way they condemned WholeFoodsCo, for providing that for they're employees.

  • Report this Comment On March 16, 2013, at 1:13 AM, ThisIsUnReal wrote:

    It seems to me the best place to find out about the taxes in Obamacare would be by reading the revenue section of Obamacare...

    I KNOW... Piglousi said "Don't Read It!", I'm just not from her part of the world...

    Title 9, the revenue section of Obamacare, has 23 new taxes, and always has... They just convinced everyone that it was a healthcare law so everyone would support it... truth be known there are 10 trillion dollars worth of taxes on the middle class over Obama's "10-year period"...

    The first one was 10% on tanning parlors... that's right your renewable bronze look has been supporting Obamacare, and you got nothing in return...

    Obama delayed 9002 for a year because his popularity was down, and his election was coming up, but don't worry, you WILL be taxed on your employer paid health insurance as if it was regular income... Or do only "Rich" people get employer paid health insurance?

    Hard to know the truth when Obama says one thing then apparently does another while blaming Bush

    BTW, The "purpose" of ObamaCare, as shown on the first page of ObamaCare, is "to ensure the first time home buyers discounts for members of the military"... explain that one...

  • Report this Comment On March 16, 2013, at 1:21 AM, ThisIsUnReal wrote:

    wsCarp1... are you a Union Carpenter? If so you got stung twice... In the original draft of the bill, Unions were exempt... as a result the Unions supported it... Being "normal" people, they never bothered to read the second draft which included them...

    All that stuff you are talking about never happened, it was all propaganda...

    When I did the math on the taxes I thought "they should turn this over to the Carpenter's Union"

    The Carpenter's Union Healthcare plans are superior to ObamaCare and much much cheaper... They could insure everyone in America with 100% everything for less than Obamacare generates for 30 million people...

    ObamaCare isn't about healthcare it's about generating more money from We The People...

  • Report this Comment On March 16, 2013, at 10:03 AM, joemelrose wrote:

    the liars on the right write these articles and really I think after writing the same lies and distortions over and over again they believe their own lies and distortions.

  • Report this Comment On March 16, 2013, at 12:36 PM, Acebass wrote:

    LOL does the author of this article realize the size of the audience he is talking to? How many people actually fit into this so called, depressed, percentage of the population that this will affect?

    Cry to someone else. The Affordable Care Act is helping me.

  • Report this Comment On March 16, 2013, at 3:43 PM, mzaz86442 wrote:

    10 Things to Say to an Obama Voter Who Just Got Laid Off ---

    1. "Hey, at least that successful Mormon businessman didn't win."

    2. "Didn't your lady parts warn you this would happen?"

    3. "Look at the bright side, gay marriage passed in four states."

    4. "Hey, Big Bird still has a job. Isn't that the important thing?"

    5. "I am sure Obama cares deeply about your situation. Maybe he'll send you a postcard from Hawaii."

    6. "Well, look at the bright side, Rush Limbaugh is getting a massive tax increase."

    7. "Hey! Now you'll have more time to play with your unicorn."

    8. "Isn't it worth losing your job to know that religious organizations now have to pay for abortions and contraceptives?"

    9. "Well, now you and Keith Olbermann have something else in common."

    10. "Forward!

  • Report this Comment On March 17, 2013, at 10:05 AM, Brianinhouston wrote:

    Obama Care (in my opinion) will take us down the path of economic failure. How in the world anyone can believe that another huge entitlement that is paid for by the few of us that still work and pay our own way thru life and give more to the government than we get back is beyond me. Obama bucks, Obama cell phones, Obama gifts to blue states, Obama attacks on coal, Obama terror attacks on religion and his willingness to take money from the regular worker and line the pockets of his Union buddies are just a few of the things that will take us down.

    Oh and I need to add the bullet train that Omaba and Harry want to build from Disney Land the to Bunny Ranch on our dime....What a joke!

  • Report this Comment On March 17, 2013, at 11:22 AM, NOTvuffett wrote:

    Please explain to me how a provision that levies a 2.3% tax on GROSS sales of medical devices is intended to lower heath-care costs.

  • Report this Comment On March 17, 2013, at 5:11 PM, wilburgalli wrote:

    I am a down stream person with health care. Old. My HMO plan payments went from $140 per month to $199 per month. I was forced to opt for a lower plan during open season for $90 per month. My retirement account has been paying Kaiser the $90 and at the same time Kaiser is sending me a bill for $90 and cannot find the money I have already paid,nor will they look for it. I plan on dumping the whole mess and re-thinking what the words 'health care' mean for me. Getting jerked around does not feel healthy.

  • Report this Comment On March 18, 2013, at 1:31 AM, mustbefriday wrote:

    I love how the delusional right is completely addicted to the black helicopter, "end of world" silliness that consistently pours out of their "disenfranchised" mouths. Tiresome victims, really. Get over it, folks...Obama won, the congress passed the ACA and he signed it.

    And that 2.3% medical device tax? Provider markup on medical devices is 150%. I guess someone will need to eat that 2.3 somewhere. Oh...I forgot...it doesn't matter because the civil war is going to start soon...better get inside my tinfoil insulated bunker...

  • Report this Comment On March 23, 2013, at 7:59 AM, Ralphdickbob wrote:

    It is facinating to see how "compassionate, caring, and loving" the "Left" is when they are in power. The comments from those on the left are highly disrespectful and hatefilled. This must be how the elimination of hundreds of millions of their own citizens by the left wing totalitarian dictators happened last century. I will be preparing.

    The problem with liberals is not that they know nothing, it's just that so much of what they know is wrong. Economics 101 is beyond them, but black holes are their sweet spot.

  • Report this Comment On March 23, 2013, at 12:58 PM, jimjaz wrote:

    Believe what you will, right or left, it does not matter. What matters is being able to care for one's self and family. In order to accomplish this, one must prepare. I hope that there are more people out there who will be able to eat and drink, and protect themselves. I've no crystal ball, but the cards are playing out in big brothers' favor, and have been for some time now. Something will trigger a big event sooner or later, possibly in O'bummers second term. He could even become our beloved dictator if he gets his way with the removal of term limits.

  • Report this Comment On May 12, 2013, at 10:32 PM, JOEYEXTRA55 wrote:

    This President Does Not Care If You Have Health Care Or Not! They Bring In 2500.00 Per Person In Tax Revenue Under The Guise Of A Penalty For Not Signing On. By The Way Who Named It The Affordable Care Act. 20,000.00 For The Economy Plan. That's More Than My Annual Salary. Do You Think For One Second If I Could Afford Health Care I Would Not Have It Already. One More Thing, Will The Money Saved By Turning America Gay(No Need For Government Funded Abortions) Pay For The Rise In Aides Outbreaks And Super Viruses Created By Homo-Sexual Activity. What About Life Insurance Provisions ? FEMA Has That Covered With The Camp Crematorium.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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