How January 1 2013 Obamacare Tax Hikes will Affect you

For Americans struggling with their budgets, people reeling from the cost of gasoline, those worried about employment or making the next mortgage payment, January 2013 will not be a good month. In fact the whole of 2013 could turn out to be a very, very bad year.

When The Patient Protection and Affordable Care Act (PPACA) was signed into law no one knew what was in the bill. That fact alone is an indictment of the Congress and an indication of how broken the mechanism of government has become.

For those wishing to wade through what some have labeled a “monstrosity,” the entire PPACA is available for study and analysis here. To learn when various provisions of The Affordable Care Act becomes law, a time line is provided here.

During the months following the signing of PPACA into law by President Obama facts began to be uncovered by the press, financial experts, tax experts, economists, and various politically-oriented groups.

Some of the provisions were disturbing, others shocking, and some just downright frightening. Once PPACA takes full effect during 2014 Americans who are opposed to it and refuse to pay the taxes will be fined. Those who refuse to pay the fine are subject to federal imprisonment. It seems the federal government is hellbent on making sure Americans have access to healthcare even if judges must strip citizens of their liberty and provide that healthcare behind bars.

But before all the provisions of PPACA kick new in taxes are scheduled to be assessed starting January 1, 2013. About 20 new taxes will be unleashed on Americans and many people who are not aware of them will be broadsided as they see their family budgets disintegrating before their astonished eyes.

According to Americans for Tax Reform (ATR), the worst tax hikes of the 20 set to take effect are:

A medical device tax, a tax to provide for children with “special needs,” a surtax on investment income that will impact many investors, a rise in the threshold for itemized deductions of medical expenses, and a Medicare payroll tax increase that has a direct, deleterious effect on small businesses making profits and earnings over $200,000 annually. The latter comes during the worst economy since the end of World War Two.

ATR explains that the $20 billion introduction of a tax on medical devices impacts an industry that employs more than 400,000 Americans. The PPACA “imposes a new 2.3 percent excise tax on gross sales—even if the company does not earn a profit…” Because of the tax small business jobs will be lost and the end result will impact “research and development budgets…increase the cost of health care” and make “everything from pacemakers to prosthetics more expensive.”

Next, the “special needs” tax will impose new restrictions on the 30 to 35 “million Americans who use a Flexible Spending Account at work to pay for their family’s basic medical needs. [They] will face a new government cap of $2,500 (currently the accounts are unlimited). The group most likely to suffer the worst under the new tax are, ironically, the parents of special needs children.

The investment surtax impacts both dividends and capital gains raising the capital gains rate from 15 to 20 percent, and the tax on dividends from 15 to 39.6 percent. Both these taxes will have a chilling effect on the stock markets and negatively impact all Americans who own stocks which include pensioners, union membership funds, state investment funds, mutual fund owners and those that have 401k’s invested in the stock market.

The change in medical itemized deductions, ATR notes, impacts “Americans facing high medical expenses.” Currently Americans “are allowed a deduction to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI).  This tax increase imposes a threshold of 10 percent of AGI. By limiting this deduction, Obamacare widens the net of taxable income for the sickest Americans.  This tax provision will most harm near retirees and those with modest incomes but high medical bills.”

And finally, “The Medicare payroll tax,” states ATR, “is currently 2.9 percent on all wages and self-employment profits.  Under this tax hike, wages and profits exceeding $200,000 ($250,000 in the case of married couples) will face a 3.8 percent rate instead. This is a direct marginal income tax hike on small business owners, who are liable for self-employment tax in most cases.”

Yet another surprise for many is that property owners may have a new tax to deal with. The complicated tax affecting millions of Americans is analyzed in the Wall Street Journal article, “Property Owners Face a New Surtax.”

For more on ATR’s analysis of the impact of the new Obamacare taxes coming January 1, 2013 and their impact on many in the middle-class, go here.