William Byrnes' Tax, Wealth, and Risk Intelligence

Here are three tips about how the law may affect you:

The IRS published tax tip HC-TT- 2014-05 alerting taxpayers that Obama Care has provisions that may affect personal income taxes. How Obama Care affects a taxpayer depends on employment status, whether the taxpayer participates in a tax favored health plan, and the taxpayer’s age.

1. Employment Status

• If a taxpayer is employed then the employer may report the value of the health insurance provided on the W-2 in Box 12 with a Code “DD”.  However, this amount is not taxable.
• If a taxpayer is self-employed, then the taxpayer may deduct the cost of health insurance premiums, within limits.

2. Tax Favored Health Plans

• If a taxpayer has a health flexible spending arrangement (FSA) at work, money added to it normally reduces taxable income.
• If a taxpayer has a health savings account (HSA) at work, money the employer adds to it, within limits, is not taxable.
• Money added to an HSA usually counts as a deduction.
• Money used from an HSA for “qualified medical expenses” is not taxable income; however, withdrawals for other purposes are taxable and can even be subject to an additional tax.
• If a taxpayer has a health reimbursement arrangement (HRA) at work, money received from it is generally not taxable.

3. Age

If a taxpayer is age 65 or older, the threshold for itemized medical deductions remains at 7.5 percent of Adjusted Gross Income (AGI) until 2017; for others the threshold increased to 10 percent of AGI in 2013.  AGI is shown on Form 1040 tax form.