Obama wishes you a prosperous New Year — now pony up

Obama-money1The Obama administration wishes every American family a prosperous New Year. We’ll need a little extra prosperity to pay for all the new taxes the government has in store for us.

Americans for Tax Reform, a Washington, D.C.-based advocacy group headed by Grover Norquist, confirms that of the 20 new or increased taxes used to pay for the Patient Protection and Affordable Care Act — Obamacare — five kicked in today. They are:

Medical Device Tax: This one received publicity lately when 17 Democratic senators called for the tax to be postponed after they realized the detrimental effect it would have on their constituents. Their chief complaint was that the measure imposes a 2.3 percent tax on gross — not net — sales of medical devices, meaning even companies that make little or no profit in a given year will be hit.

Also, according to a new IRS ruling, the tax may apply to some devices used for pets.

Flex Account Tax Cap: Until 2013, all unlimited funds employees set aside in flexible spending accounts for future medical expenses were not subject to payroll taxes. Obamacare now places a $2,500 cap on these accounts. According to the Americans for Tax Reform website:

There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  There are several million families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax provision will limit the options available to these families.

Surtax on Investment Income: This amounts to a 3.8 percent surcharge on capital gains and investment income for single taxpayers earning over $200,000 and married couples earning over $250,000. This sounds modest until you realize that taxes on capital gains are scheduled to increase from 15 to 20 percent, and dividends will now be taxed as ordinary income rather than as capital gains. With the addition of the surcharge, capital gains will be taxed at 23.8 percent (from 15), and the maximum rate on dividends will now be 43.4 percent (also from 15).

When taken together, we can expect investments to begin drying up. Fewer people will be willing to take the risk that all investments entail when the government takes such a large chunk of any reward that may come at the end.

“Haircut” for Medical Itemized Deductions: Medical expenses exceeding 7.5 percent of adjusted gross income used to be deducted. With the start of the new year, only those expenses exceeding 10 percent of adjusted gross income can be deducted.

“By limiting this deduction, Obamacare widens the net of taxable income for the sickest Americans,” the Americans for Tax Reform website says. “This tax provision will most harm near retirees and those with modest incomes but high medical bills.”

Medicare Payroll Tax Hike: Upper-income taxpayers will now pay 3.8 percent for the Medicare payroll tax instead of the standard 2.9 percent.

Have a happy New Year.
Read more at Americans for Tax Reform.

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About Michael Dorstewitz

Mike has been with BizPac Review almost from the beginning. Follow him on Twitter at @MikeBPR.