Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Three Tax Tips about Obama Care

Posted by William Byrnes on March 12, 2014


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.

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