For those who, like me, focus only on the foremost aspects of the federal government's new legislative moves and don't pore over every single detail, on the premise that we cannot do anything about it anyway, here is a follow-up to my last week's post on the subject. A few "minor" details that may directly affect many of my readers and the rest of the fast-disappearing middle class (maybe we should start studying the minutia more carefully after all):
1. Effective January 1, 2013 (never mind that the main conditions of this reform are intended for 2014), employee's Medicare tax goes up from 1.45% to 2.35% for all wages over $200,000 a year ($250,000 for joint filers). The employers' portion remains to be 1.45%.
2. The 3.8% levy, imposed on all passive income, including interest, dividends, annuities, royalties, rents, and capital gains of individuals with adjusted gross income over $200,000 ($250,000 for joint filers) in order to subsidize health benefits for unemployed and low-income population, goes into effect as of January 1, 2013 as well. Some of my readers may be interested to know that under this ruling even the private equity moguls with over $50 million in annual income will end up dropping $2 million into the subsidy purse.
[Side note: I could never understand why royalties and license fees one receives for the book or song she wrote, or a video game she programmed, or the invention she patented are classified as a passive income. Trust me, creating intellectual property is hard work. I always believed that these earnings should not be categorized as passive as long as the property is still in the hands of the original creator. If it's sold away (like the rights to The Beatles' songs), that's a different story.]
3. 2012 will be the last year when the limits of employees' contributions into Health Flexible Spending Accounts (FSA) will be determined by employers. Starting with January 1, 2013, the federal government will limit these pre-tax wage deferrals for out-of-pocket medical, dental, and vision expenses. While employers historically used the percentage-of-salary method, the government established the ceiling of $2,500 per year, regardless of the person's earnings and/or medical needs.
So, if your estimated annual expenses, not covered by the insurance policy (including all co-payments, glasses, root canals and crowns), are $6,000, you will pay the $3,500 with the after-tax net earnings. And, unless your total household income is less than $46K, you will not be able to deduct a penny of it on your tax return (due to the 7.5% medical deduction floor).
What can I say to you, my dear well-educated and hard-working middle class? Good luck surviving!
The Frustrated CFO 