On June 28th, the Supreme
Court upheld most of the provisions of The Patient Protection
and Affordable Care Act. Here are some of the tax
increases that might affect you starting in 2013:
Expanded Medicare Taxes
taxpayers will be paying higher Medicare taxes. Under the current rules,
individuals have Medicare taxes withheld from their salaries at a rate of 1.45%
on each dollar earned at work. Since employers match the amount withheld, Medicare
receives a total of 2.9% for each payroll dollar paid out. And unlike
Social Security taxes which max out at $110,100 (in 2012), there is no cap for Medicare
taxes. Self-employed individuals also pay Medicare taxes at a rate of 2.9%
on all of their net earnings.
Starting in 2013,
the employee portion of the Medicare tax jumps by a whopping 62% - from the current rate
of 1.45% to 2.35% - on earned income in excess of $200k for single individuals
and $250k for married couples filing a joint tax return. As of now, the employer match is slated to
remain at 1.45%, which means the total Medicare tax will be 3.8% for high-income
For example, if
you're single, and earn $500k from your job, expect to pay $2,700 in additional
Medicare taxes (($500k - $200k) * .9%) for 2013.
information, check out the
IRS's Questions and Answers for the Additional Medicare Tax, which explains:
The statute requires an employer to withhold Additional Medicare Tax on wages
or compensation it pays to an employee in excess of $200,000 in a calendar year.
An employer has this withholding obligation even though an employee may not be
liable for the Additional Medicare Tax because, for example, the employee’s
wages or other compensation together with that of his or her spouse (when filing
a joint return) does not exceed the $250,000 liability threshold. Any
withheld Additional Medicare Tax will be credited against the total tax
liability shown on the individual’s income tax return (Form 1040).
To increase taxes
for high-income individuals even more, the Medicare tax will also apply to unearned income
for the first time since this tax was enacted. People over the $200k
or $250k threshold
should expect to pay Medicare taxes at a rate of 3.8% on
interest, dividends, capital gains, and net rental income beginning in 2013.
You will pay this tax in addition to any federal and state income taxes due on
this income. We'll provide you a link to this form when it becomes
Breaks for Medical Expenses
offer their staff the ability to pay for their family's healthcare costs with
pre-tax dollars through a Flexible Savings Accounts (FSA) included as part of
their benefits package. Starting in 2013, the maximum amount of money that
you can set aside in an FSA will be cut in half to $2,500 per year. Plus,
medical expenses you can pay through the FSA will exclude certain items
currently allowed, including OTC medications. Please note, if you are
married, both you and your spouse can put away the full $2,500 through your
respective employer's FSA.
Protection Act also makes it even tougher for individuals to deduct their
medical expenses. Starting in 2013, you can only deduct your family's
medical expenses to the extent the allowable expenses exceed 10% of your
adjusted gross income. That's an increase of one-third over today's
threshold of 7.5% of AGI.
This new rule may
not impact your taxes, however, thanks to the dreaded AMT. Since the current threshold for
deducting medical expenses under the AMT is already 10% of AGI, many people who
are hit by this tax every year might not see any tax increase due to this change.
Steps to Consider to
Minimize These Taxes:
As with most
other tax rules, there are ways to minimize the tax bite that will be caused by
soon to be implemented changes to the Tax Code:
look at a Health Savings Account for your family. Money
contributed into an HSA is tax-deductible, and money withdrawn for your
family's medical expenses is tax-free. We wrote about HSAs in our
selling appreciated investments in 2012 if you would otherwise sell them in
2013. No one know whether the tax rate on long-term capital gains will
be higher than 15% in 2013. Add to this the 3.8% Medicare tax you'll
pay once your
income exceeds $200k if single or $250k if married, and you could save a
decent amount of taxes by selling by December 31st.
accelerating income into 2012 to reduce your 2013 income. This
strategy includes one-time income generators, such as Roth Conversions.
IRS REMINDS TAXPAYERS THAT JOB SEARCH EXPENSES CAN BE TAX DEDUCTIBLE
Many healthcare professionals work
based on the Academic Calendar. That means that a lot of Doctors switch
jobs over the summer. According to our friends at the IRS in their IRS Summertime
Tax Tip 2012-06:
the season that often leads to major life decisions, such as buying a home,
moving or a job change. If you are looking for a new job that is in the same
line of work, you may be able to deduct some of your job hunting expenses on
your federal income tax return.
Here are seven
things the IRS wants you to know about deducting costs related to your job
for a deduction, your expenses must be spent on a job search in your current
occupation. You may not deduct expenses you incur while looking for a job in
a new occupation.
deduct employment and outplacement agency fees you pay while looking for a
job in your present occupation. If your employer pays you back in a later
year for employment agency fees, you must include the amount you received in
your gross income, up to the amount of your tax benefit in the earlier year.
deduct amounts you spend for preparing and mailing copies of your résumé to
prospective employers as long as you are looking for a new job in your
travel to look for a new job in your present occupation, you may be able to
deduct travel expenses to and from the area to which you travelled. You can
only deduct the travel expenses if the trip is primarily to look for a new
job. The amount of time you spend on personal activity unrelated to your job
search compared to the amount of time you spend looking for work is
important in determining whether the trip is primarily personal or is
primarily to look for a new job.
deduct your job search expenses if there was a substantial break between the
end of your last job and the time you begin looking for a new one.
deduct job search expenses if you are looking for a job for the first time.
to be deductible, the amount that you spend for job search expenses,
combined with other miscellaneous expenses, must exceed a certain threshold.
To determine your deduction, use Schedule A, Itemized Deductions. Job search
expenses are claimed as a miscellaneous itemized deduction. The amount of
your miscellaneous deduction that exceeds two percent of your adjusted gross
income is deductible.
information about job search expenses, see
Publication 529, Miscellaneous Deductions. This publication is available on
www.IRS.gov or by calling
For 2011, the standard deduction for a single individual is $5,800 and
for a married couple is $11,600. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2011, the personal exemption is $3,700.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $110,100
for 2012, up from $106,800 for 2011.
The standard mileage rateis $.555 per business mile as of
July 1, 2011, up from $.51 per mile for the first six months of 2011.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $17,000 in 2012, up from $16,500 in 2011. And if you'll be 50 or
older by December 31st, you can contribute an extra $5,500 into your 401(k) or
403(b) account that year.
The maximum annual contribution to your IRA is $5,000 for 2012. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2013 to make your 2012 IRA
In a shocking development, the
IRS recently announced that they will be honoring the FICA tax refunds
submitted by residency programs and individual doctors. The catch is
that only FICA taxes paid prior to 4/1/05 qualify.