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Tax law and the Affordable Care Act: a tool for implementation

It's been about a year now since the U.S. Supreme Court upheld the Affordable Care Act (ACA). In California and across the nation, the implementation process for health insurance reform is well underway, with full operation of the law coming on January 1, 2014. The process of implementation will involve important aspects of the federal tax code.

The tax law aspect of ACA implementation that has received the most attention is the so-called individual mandate. If someone does not have insurance through an employer or some other coverage plan, the new law imposes a requirement to purchase insurance. Government-run online "exchanges" are being set up in each state for that purpose.

If someone refuses to comply with this requirement, the ACA imposes a penalty. And the IRS will be the agency responsible for collecting. So the penalty for not complying with the ACA will be treated like an IRS tax penalty - even though it has nothing directly to do with federal taxes.

The implementation of the ACA also affects payroll taxes. Employers have already begun to withhold higher Medicare taxes for people with high income.

High-income taxpayers will be a tax of 3.8 percent on their net investment income to help pay for the ACA's expanded health insurance coverage.

But it isn't only high-income taxpayers who are affected by the ACA. People of modest means are affected as well, as information on tax returns will be the point of departure for determining who is eligible for government subsidies to help buy health insurance.

Source: "Tax returns to serve as health reform yardstick," Fresno Bee, John M. Gonzales, 4-14-13

Please visit our page on payroll taxes.

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