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New ObamaCare Taxes Imposed In 2014

by Mike Godfrey, Tax-News.com, Washington

07 January 2014

It is being noted that three of the additional taxes, fees and penalties being imposed by President Barack Obama's United States health care law under the Affordable Care Act (ACA) took effect at the beginning of 2014.

Many of ObamaCare's 47 tax or tax-related provisions are already in effect, including the 3.8 percent net investment tax imposed on individuals, estates and trusts, and the 2.3 percent excise tax on medical devices, but three others became effective on January 1, 2014 – the individual mandate tax, the health insurer tax and the reinsurance fee, often known as the "belly button tax."

Key provisions of the ACA are the "employee mandate" and "employer mandate" in that most Americans will be required to maintain "minimum essential" health insurance coverage. Those individuals and employers who do not comply with their mandates are to make "shared responsibility" payments, or tax penalties, to the Internal Revenue Service.

For individuals, that payment will be equal to the greater of USD95 or one percent of their taxable income in 2014, USD325 or two percent in 2015, and USD695 or 2.5 percent from 2016 onwards. Individuals will thereby, it is said, be able to choose not to have health insurance and pay higher taxes, or purchase health insurance and pay lower taxes. The additional tax is expected to raise some USD55bn in the 2013-22 ten-year period.

Secondly, one of the ACA's largest tax increases is the annual fee imposed on health insurers based on their share of the market. Essentially an excise tax based on the sales price of health insurance and not tax deductible, it is targeted to raise USD8bn in 2014, increasing to USD14.3bn by 2018, and then will continuing to increase based on premium trends every year. It is expected to raise USD101.7bn in the 2013-22 period.

The tax will more than likely be passed on to consumers and small businesses through premium increases, but is expected to have little impact on large employers and their employees, because large firms usually self-insure (and are exempted from the tax). An actuarial analysis by the consulting firm Oliver Wyman projects that, in 2014, it will increase premiums by 1.9 percent to 2.3 percent, and that the impact will be greater in later years as the tax increases.

Finally, the reinsurance fee will also affect the cost of insurance. It is intended to cover the federal reinsurance program, which provides payments to insurance companies to help offset the universal application of the ACA. Its revenue will go into a fund to compensate insurance carriers who end up paying bigger medical bills for new high-risk customers who buy on the government exchanges.

The USD63 levy covers every health insurance recipient, and is expected to affect 190m Americans this year. The three-year reinsurance program is funded at USD25bn – USD12bn in 2014, USD8bn in 2015 and USD5bn in 2016.

With employers being the largest source of health insurance coverage in the US, it is expected that the levy will have a negative impact on access to health care. The tax is being seen to have serious implications on decisions to offer employer-sponsored coverage, costing many employers millions of dollars in the future. In fact, some employers are cited as having already dropped health coverage for some spouses, citing this levy as a reason.

TAGS: individuals | tax | small business | business | law | insurance | employees | fees | excise duty | health care | legislation | United States | penalties

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