With the reincarnation and passage of President Obama's Health Care Bill, the tax increases to pay for the health care legislation have now been enacted. While the health care legislation will be phased in over the next ten years, taxes to support the legislation will be phased in over the next eight years.

Following is a timeline for implementation of some of the major health care changes as well as the new taxes to pay for these changes.

2010

Tanning salons will be subject to an excise tax of 10% of the cost of the services effective July 1, 2010.

2011

Commencing January 1, 2011, you can no longer use distributions from flexible spending accounts (FSAs), health savings accounts (HSAs), or Archer medical savings accounts to pay for non-prescription (over-the-counter) medications.

If you use a distribution from a health savings accounts (HSAs) or an Archer medical savings account for something other than a qualified medical expense such amount must be included in your gross income and will now be subject to a 20% penalty tax.

2011 Form W-2s will now include a box where your employer must disclose the cost of providing group health insurance to you.

2012

Election year. No new implementations and no new taxes.

2013

Medicare tax on wages

Currently, Medicare tax is imposed on all earnings with the employer paying 1.45% and the employee 1.45%. As of January 1, a single employee will pay 1.45% on the first $200,000 of wages and 2.35% on wages in excess of $200,000. Married taxpayers filing jointly will pay 1.45% on the first $250,000 of wages and 2.35% on wages in excess of $250,000. The 0.9% increase does not apply to the employer. If the employer fails to withhold the additional 0.9% the employee will be held responsible for paying the additional tax when they file Form 1040.

Medicare tax on investment income

Single taxpayers with adjusted gross income in excess of $200,000 and married taxpayers filing jointly with adjusted gross income in excess of $250,000 will be subject to a 3.8% Medicare tax on investment income. As an example, a married couple filing jointly has wages of $260,000 and investment income of $90,000 or $350,000 of adjusted gross income. The 3.8% Medicare tax is imposed on the lesser of their investment income of $90,000 or the $100,000 in excess of the $250,000 threshold. So in this example the additional Medicare tax will be 3.8% of $90,000 or $3,420.

Investment income includes interest, dividends, annuities, capital gains, rents and royalties, and gain from a passive investment such as from a private or publicly traded partnership.

Estates and trusts will also be required to pay the 3.8% Medicare tax on undistributed investment income.

Medical itemised deductions

Currently, only medical expenses in excess of 7.5% of adjusted gross income are deductible. In 2013 the threshold is increased to 10%.

Maximum contributions to Flexible Spending Accounts (FSA)

Under current law there is no limit on the amount that can be contributed to an FSA.

In 2013 an FSA will not be a qualified benefit under a cafeteria plan unless the plan provides for a maximum $2,500 salary reduction contribution.

2014

Mandatory health insurance

Failure to have health insurance will result in a penalty of $95 in 2014, $325 in 2015, and $695 in 2017 and adjusted thereafter for inflation for each family member (to a maximum of three) who does not have health insurance.

If the individual fails to declare and pay this penalty when they file their tax return they are subject to a fine of $250,000 and/or ten years in jail.

2018

If your employer provides you with health care and the premium exceeds:

Single $10,200

Married $27,500

The individual will be required to pay a 40% excise tax on the difference between the actual cost and the above amount. For example, if the premium for the single individual was $18,900 the taxpayer would owe $3,480 in excise tax ($18,900 less $10,200=$8,700 x 40%).

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature.

You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of ETS Ltd., PO Box HM 1574, Hamilton HM GX, Bermuda. Questions should be sent to: –jsabo@expatriatetaxservices.com