New changes in 2013 mean many families and individuals will need to seek professional tax assistance. There were several significant provisions that went into effect as a result of the healthcare law January 1, 2013 that will impact your paycheck and your estate planning.
1. 3.8% Surtax on Investment Income: This new tax will be applied to your investment income if your adjusted gross income is more than $250,000 for married taxpayers filing jointly and $200,000 for single taxpayers. Investment income includes but is not limited to, interest, dividends, rents,royalties and gain on from the sale of a second home. The surtax also applies to trusts and estates if the income is more than $12,000 and is not paid out to beneficiaries.
2. Medical Device Manufacturing Tax: This tax of 2.3% will be applied to the gross sales of medical device makers, think companies that manufacture pacemakers, vital sign monitoring equipment, etc. There is a small exception for eyeglasses, contact lenses, hearing aids and devices deemed to be purchased by the public at retail for individual use. This tax may only be levied on manufacturers, but is sure to passed along to the consumer.
3. Medicare Payroll Tax Increase: The Medicare tax will increase .9 percent from 1.45 percent to 2.35 percent on wages above $250,000 for married taxpayers filing jointly and above $200,000 for single taxpayers. There is no cap on this tax, so it applies to whatever amount you earn above the triggering income.
4. High Medical Bills Tax: You have always been able to deduct medical bills that exceeded 7.5% of your adjustedgross income on your Form 1040. As of January 1, the threshold will increase from 7.5% to 10%, increasing the amount you will pay in taxes.
5. Flexible Spending Account Cap: Flexible Spending Accounts are accounts that millions use to pay for medical expenses pre-tax. You could also contribute to these accounts without limitations, but effective January 1, they will have a $2,500 annual cap.
Now is the time to start planning, especially to avoid the 3.8 percent investment income tax. And if you are a user of flexible spending accounts for medical expenses, start thinking about other savings vehicles if the $2,500 limit will impact you.
Now more than ever, you will need the assistance of experienced professionals to advise you and help you implement the best plan for you and your family. As always, seek expert advice on all your tax-planning issues.
Looking forward to seeing you soon!