Last week we got a call from Ayesha in Houston, Texas. She said she heard Obamacare will be funded through taxes, so she wanted to know how much more she'd have to pay. Here's the scoop.
Only some people will pay higher taxes as a result of Obamacare. Will you be one of them? Here's how to tell. First, if you make more than $200,000 per year (or $250,000 as a married couple), then you should expect to pay additional taxes to fund the health reform law. And second, if you don't have health insurance in 2014, you may have to pay a penalty when you file your tax return at the end of the year. Now, for the details.
Individuals making more than $200,000 and couples making more than $250,000 will pay more in Medicare taxes. Right now all workers pay 1.45 percent of their wages into the Medicare program. As of 2013, high-earning taxpayers will see that rate go up only on their income above the $200K/$250K threshold – they'll pay Medicare taxes equal to 2.35 percent of wages above that level, instead of 1.45 percent.
These top earners will also see taxes rise on their investment income. Right now there are no Medicare taxes on income earned from investments like stocks and real estate, but that will change in 2013 when a 3.8 percent Medicare tax will be levied on those types of income – though, once again, the new tax will apply only to income above that high-earner threshold; investment income below that threshold will not be subject to a Medicare tax.
There's a third way in which wealthy Americans may see their taxes rise because of Obamacare. There's a new tax on so-called "Cadillac" health insurance plans – specifically, on those health insurance plans that costs more than $10,200 annually for an individual or $27,500 for a family. Part of the reasoning behind this new tax is to encourage employers and employees to select lower-cost health insurance plans and thereby encourage individuals only to consume the health care they need – rather than procedures and therapies that might be covered in high-cost plans but may have little medical benefit.
flickr/ Christiana Care
And what if you don't make a lot of money but you find yourself without health insurance when 2014 rolls around? Your taxes may rise because there will be a penalty – beginning in 2014 – for not having health insurance. The fee could be as low as $95 in 2014, though it would rise in subsequent years. (Certain people will be exempt from the fee on the basis of income or other criteria.)
This mandate that all Americans must buy health insurance has been the most unpopular part of Obamacare. But the new law does a great deal to bring affordable coverage to millions of Americans who are currently uninsured. Such measures include expanding the Medicaid program to everyone in poverty and up to 33 percent above the federal poverty line; requiring large employers to offer health insurance to their employees; giving small employers tax credits for doing so; and offering subsidies to middle-class families who will buy private health insurance through state-based health insurance exchanges. Those exchanges – another part of the health reform law – will allow consumers to compare health insurance plans side by side, and all plans will be required to abide by certain rules in order to protect consumers. Thanks to those efforts to expand health care coverage, only around 1 percent of the U.S. population will end up paying this penalty for lacking health insurance, according to projections by the Census Bureau and reporting by the Washington Post.
That was the long answer. The short answer, Ayesha, is that your taxes won't go up unless you're a high-income earner or you're in that 1 percent slice of the population that will pay a fee for going without health insurance.