WASHINGTON — For the vast majority of people, the new health care law won’t mean sending more money to the IRS.
But among those who will see increases, the wealthiest 2 percent of Americans will take the biggest hit in taxes, starting next year. The pain will be shared by some who aren’t so well off — people swept up in a hodgepodge of smaller tax changes that will help finance health coverage for millions in need.
Eventually, roughly 20 million people will benefit from tax credits that start in 2014 to help them pay insurance premiums.
The tax increases — plus a mandate that nearly everyone have health coverage — are helping make the law an election-year scorcher. Obama is campaigning on the benefits for the uninsured, women and young adults. His rival, Mitt Romney, and Republican lawmakers are vowing to repeal “Obamacare,” saying some health care reforms are needed but not at this cost.
Lots of the noise is about the financial consequences for people who decline to get coverage and businesses that don’t offer their workers an adequate health plan. Some 4 million individuals without insurance are expected to pay about $55 billion over eight years, according to the Congressional Budget Office’s estimates. Employers could be dinged an estimated $106 billion for failing to meet the mandate, which starts in 2014.
But that mandate money, whether it’s called taxes or penalties, is overwhelmed by other taxes, fees and shrunken tax breaks in the law. These other levies could top $675 billion over the next 10 years, under the CBO’s projections of how much revenue the government would lose if the law were repealed.
The biggest chunk is in new taxes on the nation’s top 2 percent of earners — some $318 billion over a decade.
Other major taxes are aimed at the health care industry, and some of that cost is sure to be passed along to consumers as higher prices.
A rundown of the most significant tax changes — and who pays:
THE 2 PERCENT
Who pays: About 2.5 million households — individuals making more than $200,000 per year, couples $250,000.
How much: A 0.9 percent Medicare tax on wages above those threshold amounts; an additional 3.8 percent tax on investment income. Should raise $318 billion over 10 years.
The lowdown: Together these are the biggest tax increase in the health care law.
For those wealthy enough to owe it, the 3.8 percent investment tax comes on top of the existing 15 percent capital gains rate, which is set to rise to 20 percent next year unless Congress acts.
Over the years, more and more people will be caught by the new taxes, because the adjusted gross income level that triggers them doesn’t rise with inflation.
But fears that the investment tax will land on most folks’ home sales seem overblown — few sellers will be affected. A couple’s profit — not sales price — of up to $500,000 from the house they’ve been living in is exempt from taxes; only gains above that amount are taxed.
Who pays: The 28 million people who visit tanning booths and beds each year — most of them women under 30, according to the Journal of the American Academy of Dermatology.
How much: A 10 percent tax on the price of tanning. Expected to raise $1.5 billion over 10 years.
The lowdown: Tanning salons were singled out because of wide agreement among medical experts that baking under ultraviolet lights increases the risk of skin cancer.
When: Took effect in 2010.
THE “CADILLACS” OF COVERAGE
Who pays: Insurance companies or businesses that provide plans with premiums of more than $10,200 per person or $27,500 per family, not including dental or vision coverage. Employees covered by these so-called “Cadillac” benefits probably will feel the pinch.
How much: 40 percent excise tax on any amount of premium that exceeds the threshold. Expected to raise $111 billion over five years.
The lowdown: The majority of health plans aren’t affected because they don’t cost enough: Workplace family coverage now averages about $15,000, including the portion paid by the employer, according to the Kaiser Family Foundation’s survey. But some middle-class workers, especially those with strong union contracts, have health plans that exceed the threshold. Also hit are corporate bigwigs whose employer-paid plans cover virtually all expenses and lots of perks, akin to tax-free income.
Some employees will pay more for their share of insurance costs because the tax will get passed along to them. In other cases, businesses will trim benefits to bring their plans under the tax cutoff. Economists predict that many of the affected workers will get higher pay as a trade-off — but those raises would be subject to income tax.
The tax will affect more workers as time goes by. It’s indexed for inflation, but rising health care prices will probably outpace that.
BUSINESSES SET TO BOOM
Who pays: Insurers, drug companies, medical device makers. And some of their customers.
How much: More than $165 billion over 10 years
The lowdown: New taxes and fees target businesses expected to profit as more Americans get insurance. The companies will pass along these expenses as higher prices when they can. Companies that make or import brand-name prescription drugs paid a total of $2.5 billion in 2011, the first year for their fees.
Insurance companies will share in paying an annual fee that starts at $8 billion for the first year.
Companies that make medical equipment sold chiefly through doctors and hospitals, such as pacemakers, artificial hips and coronary stents, will pay a 2.3 percent excise tax on their sales, expected to total $1.7 billion in its first year. The device makers are lobbying for repeal, arguing that some small companies will have to lay off workers and reduce research spending.
When: Began last year for drug companies; starts in 2013 for device makers, 2014 for insurance companies.
Who pays: People who set aside tax-free savings to pay for health care.
How much: About $33 billion over 10 years
The lowdown: The law limits annual contributions to medical Flexible Spending Accounts to $2,500; there was no government limit before. Many employers had allowed $5,000 in the accounts, and some even more. But the average contribution was only $1,400 per year, so relatively few workers will be affected. Four in 10 employees have jobs that give them the chance to sign up for these accounts.
Last year, people with FSAs and similar accounts lost the ability to spend the money on over-the-counter medicines not prescribed by doctors.
Also, the penalty increased from 10 percent to 20 percent for money withdrawn for non-medical reasons from Health Savings Accounts, which people use to help pay high insurance deductibles.
When: Contribution limit begins in 2013.
TAXPAYERS WHO TAKE WRITE-OFFS
Who pays: People with big medical or dental bills who itemize deductions.
How much: Almost $19 billion over 10 years. Currently, taxpayers have to spend more than 7.5 percent of their adjusted gross income on medical care to qualify for a deduction. The threshold will rise to 10 percent. So a household with income of $50,000 would have to spend $5,000 on health care before deducting amounts above that.
The lowdown: Most Americans don’t have enough out-of-pocket expenses, those not paid by insurance, to meet even the lower threshold.
When: 2013 (delayed until 2017 for taxpayers age 65 or over)