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ACA Health Care Law’s Tax Impact

Now that the Supreme Court has ruled the Patient Protection and Affordable Care Act of 2010 aka Obama Care is the law of the land a prudent person must begin to figure out the effect the law is going to have on us and our finances.  I plan to do a series, the best I can without losing readers, summarizing some of the most pertinent aspects of this all in compassing law. 

ACA of 2010 Tax changes that will Impact Individuals and Families.


  • A 10% tax on the amount paid for indoor tanning services provided on or after July 1, 2010 must be paid.


  • Costs for over-the-counter drugs not prescribed by a doctor cannot be reimbursed through an HRA or health FSA, or reimbursed on a tax-free basis through an HSA. 
  • The penalty tax on distributions from an HSA that are not used for qualified medical expenses is increased from 10% to 20% of the distribution.


  • Increase the itemized deduction threshold for unreimbursed medical expenses from 7.5% of adjusted gross income to 10% of adjusted gross income.
  •  The itemized deduction threshold increase is waived for individuals age 65 and older for tax years 2013 through 2016.
  •  Increase the Medicare Part A payroll tax rate on wages by 0.9% (from 1.45% to2.35%) on earnings over $200,000 for individual taxpayers and over $250,000for married taxpayers filing jointly; applies only to the employee portion of the tax.
  • Impose an unearned income 3.8% Medicare contribution on net investment income received by higher-income taxpayers (over $200,000 individual/$250,000 married filing jointly). Net investment income includes interest, dividends, rents, royalties, gain from disposing of property, and income earned from a trade or business that is a passive activity. Self-employed individuals, as well as estates and trusts, will also be liable for this tax. Distributions from qualified retirement plans, however, will be exempt from paying the additional tax.
  • Eliminate the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments.


  •  Impose a 40% nonrefundable excise tax on group insurers of employer-sponsored plans on the portion of annual premiums that exceed an inflation-adjusted $10,200 for individual coverage and $27,500 for family coverage.
  • Higher premium thresholds ($11,850 individual/$30,950 family) will be available to certain high-risk professions, as well as to retired individuals age 55 and older.
  • While insurers will be responsible for calculating and paying the tax, they can pass along the excise tax to their customers in the form of higher premiums.

You may ask questions in the comments or contact me privately Tim Barton, ChFC

1 Response

  1. ashlie burleson

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