Q. I've heard that taxes are being raised dramatically for all Americans to cover the bureaucracy of Obamacare. So where are the savings for working Americans?
A. Several readers wrote to let me know they really, really didn’t agree with last week’s news item on how the new health care law seems to be working, including the gentleman who asked me to write about how taxes are being raised “dramatically for all Americans.”
Sorry, can’t do that, because taxes have not been raised for ordinary, non-wealthy Americans to pay for the Affordable Care Act. Here’s a rundown of who is being affected by new taxes embedded in the law.
(I’m not, by the way, including the tax penalties for being uninsured, or the equivalent “employer responsibility” penalties that large employers will start paying next year if they choose not to offer insurance to their employees, because unlike the taxes listed below, it’s within your power to avoid those fees.)
Only two Affordable Care Act taxes apply to individuals. They are directed at:
- High earners. Households with earned income above $200,000 if single or $250,000 if married filing jointly pay an extra 0.9 percent Medicare tax on all earnings over that threshold. Here’s a comprehensive IRS Q&A on this tax, which can get complicated for households with a mix of wages and self-employment income.
- Wealthy investors. There’s also an extra 3.8 percent Medicare tax on "net investment income" such as interest, dividends, and capital gains. But the tax only applies to households with a modified adjusted gross income of more than $200,000 if single and $250,000 if married filing jointly and it is only applied to total investment income or the amount that investment income exceeds those income thresholds, whichever is smaller. This is the rare example of a tax that hits the hugely wealthy harder than ordinary taxpayers. According to the Congressional Budget Office, the majority of revenues from this tax will come from the richest 0.1 percent of taxpayers, who will owe an average of about $130,000 extra, which they can probably afford because their average pre-tax income is $9.8 million. If you’re interested, here’s the full IRS Q&A on this tax.
The rest of the law’s new taxes are directed at businesses, mostly businesses that stand to earn money from selling insurance, drugs, and devices to millions of Americans who are newly insured:
- Medical device manufacturers. They are paying a 2.3 percent excise tax on their products.
- Health insurance companies. They’re paying several taxes and fees, some assessed on a per-member basis, some as a percentage of premiums on a sliding scale based on the total size of the company. Starting in 2018, insurance companies and large employers who self-insure will also pay a tax on expensive “Cadillac plans” of 40 percent of the premiums above a specified threshold.
- Prescription drug manufacturers. They are paying a tax on percentage of sales of branded prescription drugs to government programs such as Medicare, Medicaid, and the VA, again on a sliding scale according to the size of the company.
- Tanning parlors. They’re paying a 10 percent excise tax on their services.
For a complete but understandable summary of taxes in the new health care law, I recommend this issue brief from the Center for Healthcare Research & Transformation at the University of Michigan.
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