Charleston Financial Blog

Concise Summary of Tax Effects of New Health Reform Law

Posted by Wm. C. Prewitt, M.S., CFP on 30 March 2010

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How will the new health-reform law affect your taxes? Here are 10 provisions that could affect you, with some kicking in sooner rather than later.  This is a good summary by Kristen Gerencher of the tax effects of the new heath reform law that appeared in MarketWatch Blogs:

1. A 10% tax on the use of indoor tanning beds will take effect for services on or after July 1.

2. Later this year, people with flexible spending accounts will see a slight change: No more using those pretax dollars to buy over-the-counter medications.

3. The bigger change to FSAs comes in 2013, when the amount you can sock away for health expenses will be capped at $2,500 a year. Many people lowball the amount they set aside anyway because they’re afraid of forfeiting money with the use-it-or-lose-it nature of these accounts, but others who use their FSAs to get a break on expenses for chronic illnesses may have to change their financial planning accordingly.

4. Starting next year, the penalty for using a health savings account for nonqualified medical expenses rises to 20% — double what is now.

5. Starting in 2013, people with income above $200,000 for singles or $250,000 for married couples will see their Medicare payroll taxes rise nearly 1 percentage point to 2.35%.

6. A new Medicare tax of 3.8% will be levied on high earners’ investment income including interest, dividends and capital gains that exceed those two $200,000-plus thresholds.

7. Also in 2013, if you itemize on your income taxes, the amount you’ll need to claim a deduction for medical expenses will rise to 10% of adjusted gross income from today’s 7.5%. But people age 65 and older won’t face the 10% threshold until 2017.

8. Starting in 2014, for the first time most Americans will be required to carry health insurance, with government subsidies if they can’t afford it, or face a fine.  The fines for noncompliance are set to rise annually, beginning with $95 or 1% of income, whichever is greater, and growing to as much as $695 or 2.5% of taxable income by 2016. While some state attorneys general are challenging the legality of this provision, many experts say it’s likely to stand. Enforcement mechanisms are still being worked out, but one may be that taxpayers have to submit proof of insurance on their tax forms.

9. Looking further out, an excise tax of 40% on high-cost health insurance begins in 2018. It will apply to the amount of annual premiums exceeding $10,200 for individuals or $27,500 for families, but the thresholds are higher for early retirees and workers in certain high-risk jobs. The tax is supposed to hit insurers or plan administrators, who may or may not pass it on to workers.

10. There’s good news for small businesses. Those with up to 25 employees will be eligible for new tax credits starting later this year to help them provide coverage for their workers. The tax credits would cover up to 35% of the cost of health-insurance premiums. About 4 million small businesses are expected to qualify.

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10 Financial Terms Everyone Should Know

Posted by Diane H. Blackwelder on 22 March 2010

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Understanding financial matters can be difficult because of the jargon used. Becoming familiar with these ten financial terms may help make your financial picture clearer.

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Unforced Errors

Posted by Myles Brandt, CFP® on 18 March 2010

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Maria Sharapova went into the semifinals of the LA Women's Tennis Championship in 2009 clearly favored to win. Yet, she was beaten by the 10th seeded Flavia Pennetta from Italy. Critics said it was her serve and the recent shoulder surgery. What I noticed during the match was that Sharapova had 61 unforced errors and Pennetta had 23. Unforced errors are mistakes that are supposedly not forced by your opponent. They are mistakes that could have been avoided. Pennetta won not because she played well, but because Sharapova played badly.

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A Medigap Update

Posted by William C. Prewitt, MS, CFP on 8 March 2010

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New changes in Medigap Insurance policies are taking effect. New policies may have lower premiums.

Lower premiums ahead? Back in 2005, Congress voted to make major changes to Medigap plans effective June 1, 2010. While these changes are a bother, they could indirectly result in reduced premiums for these policies.  As the “modernized” Medigap plans sold after June 1 will have some differences from previous plans, insurers will be allowed to reset rates. Competition may drive premiums lower.

Please note: We’re talking about new Medigap policies that will be sold after June 1. If you already have a Medigap policy or buy one before June 1, these new changes won’t affect your plan, and you don’t need to replace your existing plan unless you feel the need. Just to clarify things further, Medigap plans are Medicare supplement plans, not Medicare Advantage plans.

The changes in brief. In June, three Medigap plans are going away, another is being modified, and two new plans are being introduced. Also, a new benefit will be included in all plans.

  • Plan E, Plan H, Plan I and Plan J will no longer be sold beginning June 1. (If you have one of these plans, you can continue to renew it as long as you keep paying premiums.)(source)
  • Two new lower-cost options will be available: Plan M and Plan N. Both come with some unique cost-sharing. 
  • Plan M looks like Plan D with a couple of alterations. It covers just 50% of Medicare’s Part A deductible; 100% of Part B co-insurance is covered, plus skilled nursing facility care and emergency care in foreign countries.(source)
  • Plan N also resembles Plan D, but there are differences. Plan N will pay the full Part A deductible, but it asks you for co-payments of up to $20 for each covered healthcare provider office visit (including specialists) and up to $50 for each covered emergency room visit (you don’t pay that $50 if you end up being admitted to a hospital).(source)
  • Plans D and G will not come with preventative care and at-home recovery benefits after June 1, 2010. After June 1, Plan G coverage of Part B excess charges will be raised from 80% to 100%.(source)
  •  A hospice care benefit will be added to basic benefits of Plans A-G.(source)
How easy would it be to switch to a lower-premium plan? If you’re going to celebrate your 65th birthday in the next few months, you can enroll in a Medicare supplement plan now and switch to a lower-premium plan in June, as you’ll be in the six-month open enrollment period. If you are older than 65, of course, you’ll have to go through underwriting to switch to a lower-premium plan – but if you’re healthy, making the switch to a cheaper plan may not be difficult at all.

Could you save on prescription drugs as well? If you find yourself hard-pressed to pay for prescription drugs, see if you qualify for Medicare’s new Extra Help program, which is worth an average of about $3,900 a year to Medicare recipients.(source)

As of January 1, 2010, Medicare no longer counts money contributed by others to pay your household expenses as income. It also no longer counts your life insurance policy as an income resource. This means that more people can qualify for prescription drug savings.

Basically, a married couple living together qualifies for Extra Help if it has less than $25,010 in resources (savings and investments) and less than $21,855 in annual income. For individuals, the limits are $12,510 in resources and $16,245 in annual income. However, you still may qualify even if you have earnings from work.(source)

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Women and Money Series

Posted by Diane on 1 March 2010

Diane Blackwelder appeared on WCBD Channel 2 promoting an upcoming Money Empowerment Series through the Center for Women.  Watch the Video to learn more.  To enroll in the workshope visit the Center for Women website.

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