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What exactly is the individual health care mandate?

If you are like most people I have been speaking with over the last several months about the Affordable Care Reform Act, you are confused about how it is going to affect you personally.

Several provisions of the Affordable Health Care Reform Act went into effect in the first two years after it was passed in March of 2010.

Tax changes already in effect

Over-the-counter medications are no longer a qualified medical expense for your itemized medical expenses. Nor are they qualified expenses for your health savings account or flexible spending account.

Another change in effect since 2011 is insurance coverage for adult children under the age of 27. Group health plans that already provide coverage for children must continue to provide coverage up to the age of 26.

Tax changes that began on Jan. 1

If you are under 65, you will need to have a greater amount of qualified medical expenses for it to be advantageous to itemize your medical expenses. For those who are already 65, there is an exception to this rule through 2016.

There is a new .09 percent surtax on wages over $200,000 or $250,000 if you are filing a joint return. For those who are affected by this surtax, the Medicare tax withheld will rise from 1.45 percent to 2.35 percent on wages over the ceiling. This additional tax also applies to self-employment income.

An additional 3.8 percent Medicare contributions tax on net investment income will be assessed when adjusted gross income exceeds certain thresholds, generally $200,000 or $250,000 for a joint return.

Both of these additional taxes will be reconciled on the tax return starting with the 2013 return. Since these taxes will increase the tax liability of those affected, careful attention must be paid to income tax withholding and estimated tax payments beginning now.

Tax changes that begin on Jan. 1, 2014

Most citizens and residents of the United States must have minimum essential health insurance coverage for themselves and their dependents. This coverage can be obtained in several ways, such as through an employer or Medicare.

If affordable insurance is not available, taxpayers can enroll through a state insurance exchange beginning in October 2013.

Failure to obtain minimum essential health insurance may result in a monetary penalty.

Some taxpayers will qualify for a subsidy to help pay the cost of insurance. This subsidy will be paid directly to the insurance company and is based on information from the previous year’s tax return.

All taxpayers who receive a subsidy are required to file a tax return for that year. The amount of the subsidy will be reconciled to the actual income on the tax return and a repayment of an excess subsidy or a credit for an additional subsidy will be calculated on that return.

So, what is the individual mandate?

In a nutshell, citizens and residents of the United States will be required to have minimum health insurance coverage for themselves and their dependents by Jan. 1, 2014.

Some taxpayers are going to have to adjust their withholding or estimated tax payments. Some will have to enroll in the exchange to secure the proper insurance. It is important for your tax professional to be up to date on these new regulations and to discuss them with you when you file your 2012 tax return.

Cindy Klein is the director for the premium office of H&R Block in Savannah and can be reached at 912-355-2643 or cindy.klein@tax.hrblock.com.

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In Case You Missed It