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Healthcare Q&A: How taxpayers may be affected

Whose taxes will increase because of the new law? How do the tax penalties work? Will the IRS be involved? What is the 'Cadillac tax'?

May 01, 2010|By Noam N. Levey, Tribune Washington Bureau

Reporting from Washington — In their recently enacted healthcare overhaul, congressional Democrats and the Obama administration rely on multiple sources of money to offset the cost of insuring more than 30 million more people over the next decade.

Much of the money — an estimated $575 billion — come from projected cuts in Medicare spending designed to make the program more efficient.

There are a host of new taxes, as well. Many are on industries, such as drug makers and insurers. And notwithstanding charges from some critics, most Americans will not see a tax hike.

But here are answers to questions about the main tax provisions that could affect individual taxpayers.

Whose taxes are going to go up because of this new healthcare law?

Individual Americans who earn more than $200,000 and couples earning more than $250,000 a year will see the most immediate effect.

Most taxpayers now pay 1.45% of their income to support Medicare, the federal insurance program for the elderly. Starting in 2013, those upper-income taxpayers will see that percentage rise to 2.35%.

Such taxpayers will also have to pay a new 3.8% tax on unearned income, such as the sale of investments.

What about these tax penalties I've heard of?

Beginning in 2014, Americans who do not get health insurance, as mandated under the new law, could face a penalty. The penalty is phased in over three years, rising in 2016 to $695 per person or 2.5% of income, whichever is more.  

The nonpartisan Congressional Budget Office, which is charged with analyzing legislation, has estimated that some 21 million people will still not have insurance by 2016.

But there are many exemptions from the penalty — for religious beliefs, low income or other factors.

And the CBO estimated that only about 4 million people would actually be subject to the penalty in 2016.

I heard the Internal Revenue Service would be hiring more than 16,000 agents to enforce the law and could put people in jail.

Those rumors, fanned largely by Republican critics of the legislation, are false.

There is no provision in the healthcare bill to hire these agents, a claim the nonpartisan FactCheck.org called "wildly inaccurate."

What about the "Cadillac tax"?

Beginning in 2018, there will be a new tax on employer-provided, high-end health plans that offer generous benefits. Plans worth more than $10,200 for individuals and $27,500 for families would be subject to the tax, which imposes a 40% levy on any value that exceeds the threshold.

For example, a worker with a plan worth $11,200 would pay a 40% tax on $1,000 (or $400), because the plan is $1,000 over the $10,200 threshold for individual plans.

The thresholds, which are scheduled to increase annually at the rate of inflation, will be higher for workers over 55 and those in certain high-risk professions, which often have higher value health plans.

noam.levey@latimes.com

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