Most intriguingly, some individuals without health insurance will owe a penalty. While many of the provisions in the Patient Protection & Affordable Care Act were delayed, the individual mandate was not. In 2014, you must have minimum essential health care coverage or pay a fee. The fee is the greater of 1 percent of your yearly household income with the maximum penalty equal to the national average yearly premium for a bronze plan, or $95 per person ($47.50 per child under 18) with a family cap of $285. There are a slew of exemptions for those with incomes below the filing requirement, financial hardships or unaffordable coverage options. You won’t have to pay any penalties or account for coverage until you file your 2014 federal tax return in 2015. Additionally, the law prohibits the IRS from collecting any payment you owe through liens or levies, but the IRS may withhold any refund you are due to cover any penalty.
The Social Security wage base increased by $3,300 this year, which means as an employee, you’re paying 7.65 percent on the first $117,000 you earn. As employers know, they pay the other half of the employment taxes. Once you pass that threshold, you continue to pay 1.45 percent in Medicare tax on all of your income. Of course, if you earn more than $200,000 for singles, $250,000 for couples, you face an additional 0.9 percent Medicare surtax. Keep in mind, when your employer looks at your wages to determine if they need to withhold an additional 0.9 percent of your salary, they are not taking into consideration your spouse’s income. If a husband and wife both earn $150,000, neither of their employers will withhold this tax because individually, they are below the threshold. However, together they make $50,000 above the threshold for a married couple filing jointly. The additional tax must be calculated on the return.
The Medicare surtax went into effect in 2013, so many taxpayers will discover they under withheld when they complete their 2013 taxes this spring. If you find yourself in this situation in April, you’ll want to make adjustments for 2014.
Speaking of Medicare, if you are a senior and you accelerated income into 2012 to avoid the potential higher capital gains taxes in 2013, you may end up paying a higher premium for Medicare Part B and prescription drug coverage this year. The Social Security Administration uses the most recent tax return the IRS provides, which is often the return two years prior to the year for which you must pay an income-related premium. Basically, if your modified adjusted gross income was above $170,000 for married filing jointly, you will likely have to pay higher Medicare premiums.
Computing your taxes is not for the faint of heart. These are just a few of the changes that may affect you this year. Next week, I’ll take a look at some of the changes that may affect small-business owners.