How ObamaCare Taxes Affect You: New Taxes, Hikes, Breaks, Credits, and Other Changes
Here’s a full list of ObamaCare Taxes. The 21 new ObamaCare tax hikes and breaks impact us all, but which ObamaCare taxes will you actually pay? Find out how the tax-related provisions in the Affordable Care Act (ObamaCare) will affect you, your family, your business, and your tax returns.
Need to file your ObamaCare taxes? Check out our page on how to file taxes under the Affordable Care Act. Everyone who is required to file taxes has to either report which months they had minimum essential coverage or make a Shared Responsibility Payment for each full month they didn’t have qualifying health insurance.
UPDATE 2019 – 2020: Please note that some specifics have changed along the way due to the implementation of some taxes being pushed back and others being changed completely over the years. Always refer to the current IRS rules when doing taxes for the year. Dates and amounts are subject to change as Congress passes new laws. One significant change is that the fee for not having coverage was reduced to $0 on a federal level for 2019 forward.
NOTE: Specific figures related to taxes are subject to change over time.
The Bottom Line on the ObamaCare Tax Plan
The new tax-related provisions in the Affordable Care Act (ObamaCare) include tax hikes, limits to deductions, tax credits, tax breaks, and other changes. While a few of the changes directly affect the average American, tax increases primarily affect high earners (those making over $200,000 as an individual or $250,000 as a family), large businesses (those making over $250,000 and those with 50 or more full-time equivalents), and the health care industry. However, tax credits primarily affect low-to-middle income Americans and small businesses (those with less than 25 full-time equivalents, making less than $25,000 in average annual wages).
Here are some quick facts to help you understand how ObamaCare affects taxes:
• For the majority of Americans with health insurance, the percentage of income paid in taxes doesn’t change much (if at all). However, some of the changes do directly or indirectly affect specific groups.
• The majority of Americans without health insurance were primarily be affected by the Individual Mandate (the requirement to buy health insurance), the Employer Mandate (the requirement for large employers to insure full-time employees), and Tax Credits, (which reduce premium costs for individuals, families, and small businesses). In other words, the requirement to get covered, the expansion of employer-based coverage, the fee for not having coverage, and cost assistance are the main tax-related provisions that affect the average American. TIP: Remember, the Individual Mandate’s fee for not having coverage was reduced to $0 in 2019 on a federal level, so in most cases this “tax” doesn’t impact anyone anymore.
• If you get a Tax Credit through the Marketplace, you’ll need to adjust and report your Tax Credit on your Federal Income Taxes. Please see our tax-filing page for details on adjusting taxes for Form 8962, Premium Tax Credit (PTC).
• Many Americans were affected by changes to new limits on medical tax deduction thresholds for Medical Savings Accounts: MSAs, FSAs, and HSAs.
• Small businesses (with less than 50 full-time equivalents) are not required to provide health insurance. Meanwhile, those with less than 25 full-time equivalents making less than $25,000 in average annual wages may be eligible for tax credits to reduce premium costs if they choose to offer employees coverage.
• Even if you don’t see higher taxes under the Affordable Care Act, it doesn’t mean there aren’t costs associated with the law. If you want health insurance, you still need to buy health insurance unless you qualify for Medicaid, and that will cost you money.
• As a rule of thumb, in regards to both health insurance costs and taxes under the Affordable Care Act, those who make less pay less, and those who make more pay more.
• The Congressional Budget Office had originally shown that paired with cuts to spending, the revenue generated from the new taxes in the ACA would help to pay for the Affordable Care Act’s many provisions, fund tax credits, and lower the deficit by 2023. Learn More. With that said, changes to the law (specifically changes to the mandate) have impacted the total revenue the ACA takes in.
Why Does ObamaCare Create New Taxes?
ObamaCare includes many new benefits, rights, and protections including the requirement for health insurers to cover people with pre-existing conditions. It also expands access to affordable health insurance to almost 50 million low-to-middle income men, women, and children across the country by offering reduced premiums via tax credits and expanding Medicaid and CHIP. The ACA’s expansions of the quality, affordability, and availability of health insurance (along with other aspects of the law) come at a high cost. Assuming all tax provisions remain in place, the revenue generated by these new taxes helps to cover the costs of the program and reduce the deficit. Learn more about the new benefits, rights, and protections offered by the Affordable Care Act.
A Quick Overview of Key Taxes in the Affordable Care Act
Before we get to the full list of taxes, here is a quick overview of the key tax-related provisions that may affect those without insurance, those who plan to go without insurance, and those who are struggling to afford insurance now.
Individual Mandate (new tax) [reduced to $0 starting in 2019]: Americans who can afford to obtain minimum essential health coverage must do so or get an exemption. If they do not, they will have to pay a per-month fee.
Employer Mandate (new tax): Starting in 2015, large employers with more than 50 full-time equivalents must insure full-time employees or pay a per-month fee for each of their full-time employees. Over half of Americans get their insurance through work, and the largest group of uninsured is currently the working poor.
Advanced Premium Tax Credits (tax break): Low-to-middle income Americans are eligible for tax credits, which reduce the upfront cost of premiums on health insurance purchased through their State’s “Health Insurance Marketplace.”
Small Business Tax Credits (tax break): Small businesses with less than 25 full-time equivalents may be eligible for tax credits of up to 50% of their cost of employee premiums through the Small Business Health Options Program.
Taking all the tax provisions in the ACA into account, ObamaCare technically provides the greatest middle-class healthcare tax cut in history.
Full List of All Taxes in ObamaCare – All Taxes in the Affordable Care Act
The following list of new ObamaCare taxes collectively raises over $800 billion by 2022. Here is a complete list of new fees and taxes contained within ObamaCare:
ObamaCare Taxes That Probably Will Not Directly Affect the Average American
• 2.3% Tax on Medical Device Manufacturers began in 2014
• 10% Tax on Indoor Tanning Services began in 2014
• Blue Cross/Blue Shield Tax Hike
• Excise Tax on Charitable Hospitals that fail to comply with the requirements of ObamaCare
• Tax on Brand Name Drugs
• Tax on Health Insurers
• $500,000 Annual Executive Compensation Limit for Health Insurance Executives
• Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D
• Employer Mandate on business with over 50 full-time equivalent employees to provide health insurance to full-time employees. $2,000 per employee – $3,000 if an employee uses tax credits to buy insurance on the exchange (AKA the marketplace). (starting 2015 for employers with 100 or more FTE and 2016 for those with 50 or more.)
• Medicare Tax on Investment Income. 3.8% over $200k/$250k
• Medicare Part A Tax increase of .9% over $200k/$250k
• Employer Reporting of Insurance on W-2 (not a tax)
• Corporate 1099-MISC Information Reporting (Repealed)
• Codification of the “economic substance doctrine” (not a tax)
ObamaCare Taxes That May Directly Affect the Average American
• 40% Excise Tax “Cadillac” on high-end Premium Health Insurance Plans 2018
• An annual $63 fee levied by ObamaCare on all plans (decreased each year until 2017 when pre-existing conditions are eliminated) to help pay for insurance companies covering the costs of high-risk pools.
• Medicine Cabinet Tax
Over the counter medicines no longer qualified as medical expenses for flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), health savings accounts (HSAs), and Archer Medical Saving accounts (MSAs).
• Additional Tax on HSA/MSA Distributions
Health savings account or an Archer medical savings account, penalties for spending money on non-qualified medical expenses. 10% to 20% in the case of an HSA and from 15% to 20% in the case of an MSA.
• Flexible Spending Account Cap began in 2013
Contributions to FSAs are reduced to $2,500 from $5,000.
• Medical Deduction Threshold tax increase began in 2013
The threshold to deduct medical expenses as an itemized deduction increased to 10% from 7.5%.
• Individual Mandate (the tax for not purchasing insurance if you can afford it). Starting in 2014, anyone not buying “qualifying” health insurance must pay an income tax surtax at a rate of 1% or $95 in 2014, to 2.5% in 2016 on profitable income above the tax threshold. The total penalty amount cannot exceed the national average of the annual premiums of a “bronze level” health insurance plan on ObamaCare exchanges.
• Premium Tax Credits for Small Businesses began in 2014 (not a tax)
• Advanced Premium Tax Credits for Individuals and Families began in 2014 (not a tax)
• Medical Loss Ratio (MLR): Premium rebates (not a tax)
The link below provides a full list of ObamaCare Taxes by the IRS.
Or see the latest publication by the joint tax committee on the Affordable Care Act.
Who Does ObamaCare Tax?
Let’s take a look at how ObamaCare’s taxes affect certain income groups.
ObamaCare Taxes for High Earners and Large Businesses
Most of the new taxes are on high-earners (individuals making over $200,000 and families making over $250,000), large businesses (over 50 full-time equivalent employees making over $250,000), and industries that profit from healthcare. Essentially, those who will see significant gains under ObamaCare are required to put money back into the program via taxes.
FACT: Tax increases generally affect single filers with an adjusted gross income (AGI) above $200,000 and married couples filing jointly above $250,000. Some of the tax increases don’t kick in until single AGI hits $400,000 and married filing jointly AGI hits $450,000.
ObamaCare Taxes for the Average American With Health Insurance
For most of the 85% of Americans who have health insurance and make less than $250,000, most of the new taxes won’t change much. However, certain taxes below will affect specific individuals and families. Also, the requirement to have coverage or pay a Shared Responsibility Payment applies to all Americans over the tax-filing threshold.
ObamaCare Taxes for the Average American Without Health Insurance
The 15% (see current uninsured rate here) of Americans without health insurance will be required to obtain health insurance (Individual Mandate) or will face a “tax penalty.” (UPDATE 2019: The fee was reduced to $0 on a federal level).
The good news is that many uninsured Americans will be exempt from the Individual Mandate for one of these reasons. They may be exempt due to income, be offered cost assistance through the marketplace via Tax Credits (also available to small businesses), qualify for Medicaid, or get insurance through work (the Employer Mandate required large employers to insure full-time employees by 2015). Adults who are under 26 will be able to stay on their parents’ plan as well. This will help to limit the number of young people who will pay the fee. Both the employer and individual mandates are part of the “shared responsibility” to expand the quality and affordability of health insurance in the United States that we take on as a trade for our new benefits, rights, and protections.
ObamaCare Taxes for Small Businesses
Small businesses with fewer than 25 full-time equivalent employees who make less than $25,000 in average annual wages will have access to tax credits to reduce premium costs of group plans. We suggest that employers use the SHOP to get employee health plans.
ObamaCare Taxes for Specific Groups With Health Insurance
Here are a few changes that may affect specific groups of Americans with health insurance:
• Other tax provisions, such as changes in medical deduction thresholds, HSAs, MSAs, and FSAs, may impact some Americans by limiting tax deductions.
• The Medical Loss Ratio (MLR or 80/20 rule) will mean that some Americans may get rebates if health insurance companies spend on non-healthcare related expenses.
• Tax provisions, like the 10% tanning bed tax, taxes on drug companies, taxes on medical devices, and taxes on health insurance companies selling insurance on and off the exchange may affect the amount of money that we pay for some healthcare-related goods and services, but these provisions will not have a significant impact on our daily lives.
• The employer mandate has caused some companies to cut down workers’ hours from full-time to part-time to avoid providing benefits. However, major employers like Disney and Walmart have increased their full-time workforce in response to the 2015 deadline.
• Overall, the benefits tend to outweigh the costs for the average American. Even those who pay a little more get a lot in return via the increased quality of their health insurance.
Will I pay More Taxes and High Premiums Because of ObamaCare?
As mentioned above, premium rates and the taxes you will have to pay are primarily based on income. Apart from income, premium prices are based on which plan you choose, family size, age, smoking status, and geography. Subsidies reduce the overall rate of your premiums (however, smoking is factored in after subsidies). The plan for 2018 includes a 40% excise tax on the very high-end health insurance plans. Most of us don’t have those.
Aside from the tax provisions that require Americans to obtain insurance and those that subsidize its costs, ObamaCare also includes a few tax-related provisions, such as requirements for better reporting and the Medical Loss Ratio, which work as consumer protections.
ObamaCare Tax Rebates
Some consumers in both individual and group markets will see tax rebates due to ObamaCare’s Medical Loss Ratio (MLR). Health insurance companies will have to provide rebates to consumers if they spend less than 80 – 85% of premium dollars on medical care.
Medical Loss Ratio (MLR)
The Medical Loss Ratio (MLR) means that Insurance companies are now required to spend at least 80% of premium dollars (85% in large group markets) on medical care and quality improvement activities. Insurance companies that are not meeting this standard will be required to provide rebates to their consumers. The MLR isn’t a tax, but it does have implications in regards to filing taxes, and rebates can be given in the form of reduced premiums. See our page on ObamaCare Health Insurance Regulations for more details.
ObamaCare Income Tax Penalty For Not Having Insurance “Individual Mandate.”
Note: This section no longer applies on a federal level for 2019 forward, it may however roughly apply on a state level. Although in states with a mandate, that mandate’s penalty may be unique.
The Individual Mandate is officially called the “Individual Shared Responsibility Provision.” It says that starting in 2014, most people had to have insurance or pay a “penalty deducted from your taxable income” called an “Individual Shared Responsibility Fee.”
The annual fee for not having insurance in 2014 was $95 per adult and $47.50 per child (up to $285 for a family) or 1% of your household income above the tax return filing threshold for your filing status – whichever amount is greater. You paid 1/12 of the total fee for each full month in which at least one family member went without having either coverage or an exemption.
The annual fee for not having insurance in 2015 and beyond is $325 per adult and $162.50 per child (up to $975 for a family) or 2% of your household income above the tax return filing threshold for your filing status – whichever is greater. You’ll pay 1/12 of the total fee for each full month in which at least one family member went without having either coverage or an exemption.
- The fee cannot exceed the cost of a “bronze plan” bought on the exchange.
- The requirement can be waived for several reasons. These include financial hardship or religious beliefs.
- The 8% rule: If the cheapest marketplace plan would exceed 8% of your household income, you qualify for an exemption from the fee. See a full list of exemptions, how to apply for them, and how they work.
- Many individuals who are exempt from the mandate to buy insurance will still be eligible for free or low-cost insurance through the health insurance marketplace.
- While some states, including Alabama, Wyoming, and Montana, have passed laws to block the requirement to carry health insurance, those provisions do not override federal law. Get more information on the ObamaCare Individual Mandate.
What Are ObamaCare Tax Credits?: Advanced Premium Tax Credits
Advanced Premium Tax Credits for Individuals and Families
Individuals and families will have access to advanced premium tax credits on the marketplace. Tax Credits are deducted from your premium cost by your health insurance provider and are adjusted on your Modified Adjusted Gross Income (MAGI). You can choose how much ( up to a maximum amount) in advance credit payments to apply to your premiums each month. If the dollar amount of advance credit payments you get for the year is less than the tax credit you’re due, you’ll get the difference as a refundable credit when you file your federal income tax return. If your advance payments for the year are more than the amount of your credit, you must repay the excess advance payments with your tax return.
Aside from premium tax credits, individuals and families can also get lower cost-sharing on out-of-pocket expenses (coinsurance, copays, deductibles, and out-of-pocket maximums) through the marketplace.
Eligibility for Tax Credits
In general, you may be eligible for the credit if you meet all of the following:
- buy health insurance through the Marketplace;
- are ineligible for coverage through an employer or government plan;
- are within certain income limits;
- file a joint return (if married); and
- cannot be claimed as a dependent by another person.
If you are eligible for the credit, you can choose to:
- Get It Now: have some or all of the estimated credit paid in advance directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums during 2014; or
- Get It Later: wait to get all of the credit when you file your tax return.
How Will Advanced Premium Tax Credits Affect My Health Insurance Costs?
Under the Affordable Care Act, health insurance that costs less than 8% of your MAGI is considered affordable. Although the law doesn’t guarantee lower costs, premium tax credits help to ensure that more Americans will have access to affordable insurance.
As a rule of thumb, most Americans will pay between 1.5% and 9.5% on their Modified Adjusted Gross Income (MAGI) when using tax credits to buy a basic Silver Plan on the marketplace.
You are exempt from the individual mandate if the lowest-priced coverage available to you would cost more than 8% of your household income. TIP: Exemptions are no longer relevant in most states.
The amount you pay is determined by a sliding scale based on your income. Use the chart below to get an idea of what you and your family may pay for insurance purchased through the Health Insurance Marketplace. Make sure to check out ObamaCare Subsidies for more detailed information on Premium Tax Credits.
Simplified 2015 FPL Guidelines you’d use for 2016 cost assistance, 2015 Medicaid and CHIP, and taxes filed April 15, 2016. See all Federal Poverty Guidelines here.
|Persons in household||2015 Federal
Poverty Level threshold
|NOTE: If your family size was more than 8 people, add $4,160 for each additional person. Hawaii and Alaska use different guidelines.|
The following table is an example of how premium tax credits work. Please note that the numbers below are purely for example and don’t reflect your personal rates.
|Income % of federal poverty level||Premium Cap as a Share of Income||Income $ (family of 4)||Max Annual Out-of-Pocket Premium||Premium Savings||Additional Cost-Sharing Subsidy|
|133%||3% of income||$31,900||$992||$10,345||$5,040|
|150%||4% of income||$33,075||$1,323||$9,918||$5,040|
|200%||6.3% of income||$44,100||$2,778||$8,366||$4,000|
|250%||8.05% of income||$55,125||$4,438||$6,597||$1,930|
|300%||9.5% of income||$66,150||$6,284||$4,628||$1,480|
|350%||9.5% of income||$77,175||$7,332||$3,512||$1,480|
|400%||9.5% of income||$88,200||$8,379||$2,395||$1,480|
|In 2016, the FPL will be 11,770 for a single person and about $24,250 for family of four. Use the Kaiser ObamaCare Cost Calculator for more information. DHHS and CBO estimate the average annual premium cost in 2014 to be $11,328 for family of 4 without the reform. Source: Wikipedia|
ObamaCare Employer / Employee Taxes
ObamaCare’s taxes mean that large employers will have to provide health insurance to their employees and will see a raised Medicare part A tax. Small businesses may be eligible for tax breaks.
Medicare part A Tax Hike for Employers and Employees
The Medicare part A tax is paid by both employees and employers who earn over a certain amount. ObamaCare’s Medicare tax hike represents a .9% increase (from 2.9% to 3.8%) on the current total Medicare part A tax. This tax is split between the employer and employee. Thus, each will see a .45% raise. Small businesses making under $250,000 are exempt from the tax. Employees making less than $200,000 as an individual or ($250,000) as a family are also exempt. Employers must withhold and report an additional 0.9% total on employee wages or compensations that exceed $200,000.
Tax Penalty for Not Providing Full-time Workers with Health Insurance the “Employer Mandate.”
Employers with over 50 full-time equivalent employees must either insure their full-time employees or pay the penalty (the “employer shared responsibility fee”). The penalty is $2000 per employee. If, however, at least one full-time employee receives a premium tax credit because coverage is either unaffordable or does not cover 60 percent of total costs, the employer must pay the lesser of $3,000 for each of those employees receiving a credit or $750 for each of their full-time employees total.
Employers with fewer than 25 full-time employees whose average income doesn’t exceed $50,000 can apply for tax credits of up to 50% for insuring their employees.
Tax Credits for Small Businesses
If small businesses have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000, they can apply for tax breaks of up to 50% of their share of employee premium costs via ObamaCare’s Small Business Health Options Program (accessible through your State’s Health Insurance Marketplace). The credit can be as much as 50% of employer premiums (the rate was 35% for not-for-profits in 2014). The credit is only available if the employer is paying at least 50% of the total premiums.
Small Business Health Options Program
Employers with 50 or fewer employees can purchase affordable insurance through the Small Business Health Options Program (SHOP) even if they don’t qualify for tax credits.
Along with the new law, there are new requirements for reporting.
- Effective starting in the calendar year 2015, you must file an annual return reporting whether and what health insurance you offered your employees. This rule was optional for 2014. Learn more.
- Effective starting in the calendar year 2015, if you provided self-insured health coverage to your employees, you must file an annual return reporting certain information for each employee you cover. This rule was optional for 2014. Learn more.
- Beginning Jan. 1, 2013, employers had to withhold and report an additional 0.9 percent on employee wages or compensation that exceed $200,000. Learn more.
- You may be required to report the value of the health insurance coverage you provided to each employee on his or her W-2 Form.
Other ObamaCare Taxes on Big Business
In addition to making people adhere to the “employer mandate,” ObamaCare also imposes taxes and fees that are unique to big business. ObamaCare taxes some medical device manufacturers, drug companies, and health insurance companies. Beginning in 2013, medical device manufacturers and importers had to pay a 2.3% tax on the sale of a taxable medical device. This was expected to raise $29 billion over 10 years. However, many states are asking to delay the medical device excise tax to protect jobs in states that produce the devices. An annual fee for health insurers is expected to raise more than $100 billion over 10 years while a fee for brand name drugs will bring in another $34 billion.
- Employers that have employees who earn more than $200,000 will have to look at the potential for additional Medicare withholding due to the Medicare part A tax.
- Employers that issued 250 or more W-2 forms in 2012 were required to report the cost of employer-sponsored health coverage beginning in 2013 on the 2013 W-2 forms.
Medical Device Excise Tax
There is a 2.3% medical excise tax on medical device manufacturers and importers on the sale of taxable medical devices. Section 4191 of the Internal Revenue Code imposes an excise tax on the sale of certain medical devices by the manufacturer or importer of the device. This tax applied to sales of taxable medical devices after Dec. 31, 2012. You can learn more from the official IRS page on the Medical Device Tax.
What Increases Do the ObamaCare Taxes Include for The $200k/$250k Earners?
ObamaCare Medicare Part A Payroll Tax
Starting in 2013, individuals with earnings above $200,000 and married couples making more than $250,000 saw an increase in the Medicare part A payroll tax. It’s an increase of 2.35%, up from 1.45% ( a .9% Medicare part A payroll tax hike), on adjusted income over the threshold.
ObamaCare Unearned Income Tax
This group will also pay a 3.8% unearned income (capital gains) tax on interest, dividends, annuities, royalties, rents, and gains on the sale of investments over the threshold.
Taxable income under the $200,000 for individuals and $250,000 threshold for families is subject to the same benefits and tax cuts as those who earn under the threshold.
ObamaCare Home Sales Tax / ObamaCare Real Estate Tax Increase
ObamaCare increases taxes on unearned income by 3.8%, and this can add additional taxes to the sales of some homes. However, many limitations apply, so this won’t affect most sellers. The 3.8% capital gains tax typically doesn’t apply to your primary residence. It also doesn’t usually apply to homes you have owned for over 5 years or on profits of less than $250,000 for individuals and $500,000 for couples due to a capital gains tax exclusion rule for sales of a primary home.
In short, the ObamaCare home sales tax isn’t something that most of us will pay – it is a tax aimed toward those selling non-primary residences in short term periods for profit, and has no impact on the average American buying and selling their primary residence.
ObamaCare Medical Expense Deductions
ObamaCare increases the medical expense deduction threshold. Unreimbursed medical expense deductions will now be available only for those medical expenses in excess of 10% of AGI, which has been raised from 7.5%. During the period between 2013 and 2016, there is a temporary exemption for individuals ages 65 and older and their spouses.
ObamaCare “Cadillac” Tax
Starting in 2018, the new health care was set to impose a 40% excise tax on the portion of most employer-sponsored health coverage (excluding dental and vision) that exceeded $10,200 a year and $27,500 for families. The tax has been dubbed a “Cadillac” tax because it hits only high-end “gold,” “platinum,” and high-end health care plans not purchased on the exchange. The tax was set to raise over $150 billion over the next 10 years. However, this tax was never implemented.
New ObamaCare Taxes Summary
Going through the new ObamaCare taxes line by line is, in itself, taxing. The outcome is that, while higher-earners paid tax rates closer to what they did in the Clinton years, the majority of Americans found themselves paying less for better healthcare. In addition to cutting out billions in wasteful spending, ObamaCare paid for most of its regulations by the above taxes and reforms to both Medicare and health care as a whole.
ObamaCare Taxes Moving Forward
We hope this helps you to understand the new ObamaCare taxes and how they work. Many of ObamaCare’s taxes were not designed to be fully implemented until 2022 but were in full effect as of January 1st, 2014. ObamaCare helps all Americans get access to high-quality, affordable healthcare as well as new benefits, rights, and protections. Make sure to look out for ObamaCare tax breaks, credits, subsidies, and breaks on upfront costs moving forward into each year, there have been and likely will be changes each year beyond the expected changes like changes to the federal poverty level. We will update our full ObamaCare tax list as we learn more.
ObamaCare Taxes: New Health Care Taxes