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Unformatted text preview: nytimes.com). The purpose of this paper is to show the effects of the Affordable Care Act on taxes of individuals and corporations. The best way to do this will be to look at the tax provisions that have taken effect already and those that will take effect in the future. One of the earlier provisions that have taken effect is the Medical Loss Ratio provision. This provision affects insurance companies by requiring insurance companies to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio standard (www.irs.gov). Those companies that do not met this standard will be required to provide rebates to their consumers. The payments of rebates took effect in 2012. When a Medical Loss Ratio rebate is paid by an insurance company, the taxable income of the insurance company will be decreased. The Affordable Care acts sets the percentage that insurance companies must meet at 80% (individual or small group insurers) or 85% (large group insurers). This means that a minimum of 80% or 85% of premium dollars must be spent on health costs. The remaining percentages will be left to pay overhead expenses, such as marketing, profits, salaries, administrative costs, and agent commissions (www.healthcare.gov). For the individual who receives these rebate payments, they may or may not be required to include these payments on the individual tax returns. If an individual deducts premium payments in the prior year to receiving a Medical Loss Ratio rebate, then that individual’s rebate will be subject to federal income tax, to the extent that they received a tax benefit from that deduction. If an individual does not deduct premium payments in the prior year to receiving a Medical Loss Ratio rebate, then that individual’s rebate will not be subject to federal income tax (www.irs.gov). At the beginning of the year 2013, a new tax on investment income took effect. This tax, called a Net Investment Income Tax (NIIT), will fall under Section 1411 of the Internal Revenue Code. There will be a 3.8% tax applied to investments that exceed the thresholds. Another name that has been given to this tax is the Unearned Investment Medicare Contribution, although it will not benefit the Medicare fund trust (www.forbes.com). The NIIT will apply to individuals, estates, and trusts that have investment income above mandated amounts. In order to calculate the NIIT, there are two components that an individual taxpayer will have to consider- the net investment income and the modified adjusted gross income. Included in an individual’s net investment income are dividends, interest, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive to the taxpayer. There are several types of gains that will be included in this category including gain from the sale of stocks, bonds, mutual funds, capital gain distributions from mutual funds, and gain from the sale of investment real estate (IRC Section...
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- Spring '13
- Taxation in the United States