Tax Implications of the Affordable Care Act

The insurance exchanges associated with the Affordable Care Act opened up October 1, and while the impact of the new marketplace remains to be seen, one thing is certain. Many people aren’t aware of the tax implications of the Affordable Care Act.

We’ve listed a few frequently asked questions about taxes and the Affordable Care Act to help clear some things up:

Q: I’m a 56 year-old retiree (lucky me!), and I’m planning to sign up for coverage through one of the new exchanges that just opened up. Is there an opportunity for me to receive tax credits to help with my premiums?

A: Maybe. If you exceed the income limits below, you can still receive coverage through the new health care exchanges, but you will not be eligible for premium assistance via federal tax credits. If you fall within these ranges, the insurance exchange websites provide tools to help you calculate your total premium assistance tax credit.

ACA income table

Q: What is considered income in the equation to see if I qualify for premium assistance tax credits?

A: Income is considered:

  • Adjusted Gross Income, plus:
  • Non-taxable Social Security benefits
  • Excluded foreign earned income
  • Tax-exempt interest

Income is not

  • Certain Roth IRA distributions
  • Withdrawals from savings or basis (Cost basis of an investment is the initial amount deposited, plus any additional capital gains or dividends that have been reinvested into the investment, which have already been included on your tax return.)
  • Life insurance loan proceeds
  • Line of credit proceeds

Q: What if I’m close to the income thresholds, but I’m not sure exactly where I land?

A: Come and see a financial advisor who can help you both determine your income AND develop a tax-efficient income distribution strategy to help you qualify for premium assistance tax credits.

Q: What else do I need to know about tax implications of the Affordable Care Act?

A: If you have a high household income (>$250k for those married, filing jointly), you should be aware of a Net Investment Income tax of 3.8% that went into effect 1/1/2013, as well as an additional Medicare surtax of 0.9%.

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