As America’s new healthcare law is implemented, many consumers are asking how the new law affects their taxes. In this article, we will share with you some of the ways Obamacare will be affecting your taxes in the coming years and what you can do about it.
- Prescription Drugs
Prescription drugs are eligible for a $250 rebate. This is to help people who receive their health insurance through Medicare. The rebate is designed to offset the gap in coverage that often occurs in providing for the cost of prescription drugs.
- Health Savings Accounts
Your health savings account is no longer available to use on over-the-counter drugs, and you can’t use the money for non-health related expenses. Only prescription drugs will be covered, along with medically necessary expenses. Any purchase of a non-qualified product is subject to a tax penalty of 10% to 20%.
- Flexible Spending Accounts
While caps have always existed on FSA’s, the new healthcare law lowered the cap from $5,000 to $2,500. Any income above $2,500 is now taxable under the new law. The cap will only be adjusted in accordance to a rise in the cost of living.
- Dental Insurance and Medical Insurance
Unlike medical insurance, you should have dental insurance but it is not required under Obamacare for adults to purchase. It is only a required benefit for children. This means that while it must be offered, you don’t have to take it. However, should you choose it as part of your healthcare plan, there are certain tax deductions with which you can take advantage of alongside your medical coverage.
You can include most out-of-pocket expenses for you and your family members who are listed as dependents.
You can include any cost associated with diagnosing, treating, easing, or preventing disease. This means the cost of your premium, long-term care, and prescription drug coverage is eligible for a deduction.
However, all medical expenses must exceed 10% of your adjusted gross income before you can claim a deduction.
You cannot include any of the amounts you paid into your medical savings accounts. These benefits are tax free, and as such do not qualify.
The deduction for both medical and dental insurance lowers the taxable income you claim, but does not lower your modified adjusted gross income. While you won’t be able to claim more tax credits, it does help protect you if you’ve lost income due to medical expenses.
In order to take advantage of these deductions, you will need to itemize them on form Schedule A.
- No Medical Coverage
Should you forego coverage altogether, you will be subjected to a tax penalty worth 2.5% of your income per person. Therefore, it is important that you consider medical coverage to avoid this penalty.
As Obamacare continues to change the landscape of America’s tax system, it’s important to know how you will be affected. Keep these things in mind during tax season so that you can take advantage of the benefits and avoid the penalties.