The Supreme Court Upholds the Patient Protection & Affordable Care Act

Today the Supreme Court, in a 5 to 4 vote, upheld the constitutionality of the Patient Protection & Affordable Care Act under the broad power that Congress has to impose taxes.  Some of the provisions such as allowing children to stay on their parent’s health insurance through age 26, and the small employer health insurance credit have already taken effect, and will continue to remain in effect.

Additional provisions of the Act have different effective dates.  Some of the provisions that take effect beginning in 2013 are as follows:

• Beginning in 2013 health flexible spending accounts offered through a cafeteria plan must limit annual reimbursements to $2,500.  This does not limit other benefits available under a cafeteria plan such as dependent care reimbursements.
• Currently individual wages are subject to Medicare hospital insurance tax.  The employer pays 1.45% on eligible wages and the employee pays 1.45% with no cap on the wage amount.  Beginning in 2013 there is an additional .9% for the employee portion on wages over $200,000 ($250,000 on a joint return).  An employer only withholds based on the individual’s wages and any shortfall that is calculated on a joint tax return is assessed on the taxpayer’s individual income tax return.  The provision also applies to self-employment income.
• Beginning in 2013 a 3.8% Medicare tax is imposed on the lesser of

·        An individual’s net investment income for the tax year or

·        Modified adjusted gross income in excess of $250,000 for joint filers and surviving spouses, $125,000 for a married taxpayer filing a separate return and $200,000 in any other case. 

For this purpose investment income includes interest, dividends, rents and income from passive

business activities.  Additional guidance and clarification needs be issued in this area.

• Currently the itemized deduction for medical expenses is reduced by 7.5% of adjusted gross income.  Beginning in 2013 this increases to 10%.  The Act delays the 10% adjustment for taxpayer 65 or older until 2017.

Other provisions such as the tax on failing to have health insurance (individual mandate) and rules regarding large employers providing affordable health insurance take effect in 2014.

Bergan Paulsen will continue to monitor the effect this decision has on our clients.  Please don’t hesitate to contact any of our offices with specific questions.

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