Obamacare made it through the election. Will it stay on your tax return?
Every new president brings on a new aura for Americans to bask in, and while emotions run high, opinions begin to surface. Suddenly, cheerful holiday dinners turn into political debates. Some chime in while the rest of us are just trying to decide between pecan pie or pumpkin. One debate is the replacement of Obamacare, or the American Health Care Act. Lately, we’ve introduced a new word into our vocabulary that will likely stick; TrumpCare.
Flexible Spending Account (FSA) for Over-the-Counter Medicine
According to the IRS in 2011, under the Affordable Care Act (aka Obamacare), “Distributions from health FSAs and HRAs will be allowed to reimburse the cost of over-the-counter medicines or drugs if they are purchased with a prescription.” This will remain accurate until Obamacare is no longer in effect. However, there are limits to the Flexible Spending Account. For example, the pre-tax dollars you can have contributed to your account adjusts each year depending on inflation. The FSA limit is currently $2,500.
The American Health Care Act (aka TrumpCare) having one foot in the door, we can expect to see a few changes. President Trump truly believes in the benefits of Health Savings Accounts (HSAs). Although these accounts have been available to eligible Americans for the past decade, they tend to attract mostly higher-income earners. TrumpCare will remove the $2,500 FSA limit for those who want to purchase a high deductible medical coverage plan. Therefore, for larger deductibles, HSAs come into play. The HSA contribution limit for individuals is $3,400.
Lower to middle-income earners are finding this new plan hard to swallow since HSAs require a high-deductible account and the money to fund it. Long story short, with the existing HSA guidelines, many will not qualify and will therefore not be able to use either of these accounts to purchase over-the-counter medication like they can now with FSAs.
Individual Shared Responsibility Tax Payment
We can all agree that the Affordable Care Act increased health care coverage among Americans, the statistics speak for themselves. However, the reason why might have to do with the tax penalty you would be subject to paying if you didn’t have any coverage at all. The Individual Shared Responsibility Tax Payment ensured that you (and each member of your household) would either have the minimum essential health coverage or pay a pretty penny out of your tax refund. The choice was yours but either way, you pay. As of 2016, the penalty had increased to the larger of:
- $695 for each adult and $347.50 for each child without minimum coverage (maxing out at $2,085 per household), or
- 2.5% of your household income above the tax return filing threshold for your filing status
President Trump’s plan repeals this tax penalty. There are rumors that Americans who have paid this penalty in the past will be able to amend their tax returns to accommodate for the repeal.
Medical Itemized Deduction Threshold
Currently, Obamacare allows individuals who itemize medical expenses to deduct costs that exceed 10% of their AGI (Adjusted Gross Income).
Under the American Health Care Act, those who itemize their deductions would be able to write off medical expenses exceeding 5.8%, reducing the current threshold of 10% by almost half. This would allow those who have large, out-of-pocket medical expenses to deduct more on their tax returns for the year.
When one door closes, another one opens…even in the tax world.
Taxes and politics are two subjects that are the furthest from appetizing yet always seem to sneak into dinner table conversations. Get started filing your current or prior year taxes whichever political party or tax bracket you fall under. Create an account today or feel free to give us a call with any questions you have.