Now that we’ve seen the other side of the fiscal cliff you may be wondering what exactly to expect in 2013 which is why we decided to provide you with these 2013 tax tidbits to munch on.
Take note of the 0.9 percent Medicare payroll tax increase
In addition to the Medicare surtax on investment income, individuals who make more than $200,000 ($250,000 for joint filers) in the 2013 tax year we will see a new 0.9 percent Medicare payroll tax taken out of their paychecks on the amounts earned over their filing status thresholds. Self-employed workers will have to figure the added payroll tax on their earnings, too.
Monitor your medical expenses
A major shortcoming of the itemized medical expenses deduction is that you must rack up enough qualified costs to be able to claim the amount on Schedule A. In the 2013 tax year, again as part of the health care law, you’ll need even more. For the 2012 tax year, you can deduct only the amount of medical and dental expenses that exceed 7.5 percent of your adjusted gross income, or AGI. In 2013, you must have qualified medical expenses that are more than 10 percent of your AGI. Taxpayers age 65 or older, however, can still use the 7.5 percent threshold through 2016.
If you plan to get around the higher deduction threshold by using a flexible spending account, or FSA, to pay for unreimbursed medical costs, that’s still a good strategy for the 2013 tax year. But as you learned when you signed up for your medical FSA during your workplace benefits enrollment period, you can only put up to $2,500 into the account. So, plan accordingly for expenditures of this reduced amount.
Determine whether your insurance rebate is taxable
Last fall, health insurers issued more than $1 billion in premium refunds to nearly 13 million consumers. The payments, officially known as medical loss ratio, or MLR, rebates were required by the Affordable Care Act in cases where health insurers did not spend at least a certain percentage (generally 80 percent to 85 percent) of the prior year’s health insurance premiums on health care services. The rebates issued in August 2012 covered premiums collected for the 2011 plan year. And in some cases, the rebates are taxable. The general tax rule is that if you got a tax break for the money and then got some of it back, the Internal Revenue Service wants to collect its portion. So, for example, if you paid for your medical insurance and itemized those premiums as part of your medical deductions, at least a portion of the rebate is taxable. The IRS has a frequently asked questions Web page with more on the various insurance rebate payment methods and taxability issues.
Note your company health coverage’s value
One more health care act tax provision will show up on your 2012 Form W-2 that your employer is required to send you by the end of January. In Box 12, you’ll see how much your workplace-provided medical coverage is worth. Don’t worry. You don’t have to include the amount, which will have the explanatory code DD next to it, on your tax return. It’s for informational purposes only. The IRS will use this data to help it enforce the eventual individual coverage mandate (effective in 2014), as well as collect the so-called Cadillac tax on more expensive workplace insurance plans (effective in 2018).
Find a tax professional
Tax laws change every year. And too often, the changes are made late in a tax year, giving you very little time to adjust. If the 2013 tax year is the one where you decide to get professional help in deciphering the late-breaking and convoluted tax laws and filing your return, start searching for a tax pro now. You have plenty of time to determine which tax professional best fits your tax needs and then thoroughly check out the tax adviser before hiring.
The 2013 Tax Tidbits come from the article in Yahoo Finance, 10 Savvy Tax Strategies to Keep in Mind for 2013 By Kay Bell | Bankrate.com