It’s strange to be thinking about the tax season during the holidays, yet the end of the year is fast approaching as you will be gathering your receipts and forms to turn in to get your yearly refund. One thing you may be wondering about is how the Affordable Care Act will be affecting TY13 returns next year?
While all Americans will be required to have medical insurance or face a penalty, this tax law won’t take effect until next year. So you should still get everything in your tax return as expected. Next year there will be many changes, especially for people in a higher tax bracket. Let’s take a look at the changes that may affect you.
Previously, you could claim tax deductions on your medical expenses that weren’t covered by your health insurance. These medical expenses had to be more than 7.5% of your adjusted gross income (AGI). This tax deduction will soon change to 10% of your AGI. So if your medical expenses are more than 10% of your adjusted gross income, you may claim the deduction. Those who are 65 or older may still claim the deduction – up until 2016 – if your medical expenses exceed the 7.5% threshold.
If you fall into the higher income tax bracket, you will have to deal with the coming Medicare changes that were put into place to help this ailing program. Two changes you should be aware of are the Additional Medicare Tax and the Net Investment Income Tax.
Additional Medicare Tax: You will need to pay an additional 0.9% based on your earned income wages if you make more than $200,000 when filing an individual tax return, $250,000 if married and filing a joint return, or $125,000 if you are married but filing separate returns. Normally, your employer will withhold the tax directly from your wages if you file an updated W-4 form, according to the IRS. If you are self-employed, you will need to make estimated tax payments so you won’t have a balance due to the government next year.
If you experienced a loss to a small business or you make less than the $200,000 income threshold for a joint tax return filing but still have the Medicare tax withheld from your earnings, you are eligible for a refundable credit. Yet you will have to wait to file your tax returns to receive this credit since employers cannot issue you the refund.
Net Investment Income Tax: There will now be a 3.8% Medicare surtax on investment income such as dividends, capital gains, interest, rental income, passive income, or royalty income. These changes affect individuals, estates and trusts whose income falls within the described wage thresholds of $200,000 for individual returns, $250,000 for joint returns and $125,000 for married but filing separate returns.
Find out as much information as you can about the coming tax changes and how they affect your tax return. By researching the tax changes, you can pay all the required taxes and receive your refund without experiencing problems.