More taxes with Healthcare Reform

While the House has passed its healthcare bill, the Senate bill continues to sit on the shelf.  Apparently, the Senate is waiting for the scoring of the proposed bill by the Congressional Budget Office.  Essentially, scoring is the CBO's estimate of how much all of the will cost over the next 10 years.  I would really like to see that excel spreadsheet.

New reports are coming out that Senate Majority Leader Reid is considering an increase in the Medicare tax from its current 1.45% as part of the bill.  He is also considering the application of a new Medicare tax on capital gains.

In its current form the Medicare tax is applied to earned income (wages, etc.).  Most wage earners pay the Medicare tax by withholdings on their wages.  Self employed individuals pay it through the Self Employment Tax on their self employment income with their individual tax return.  It is suggested that potential increases in the Medicare tax rate on earned income might only be applied to income in excess of $250,000.  A Medicare tax on capital gains does not currently exist in the tax law.  I guess wealth redistribution in the United States begins at $250,000. 

A strange twist in the Senate bill is a reduction in the amount that taxpayers can contribute to flexible spending accounts.  Many employees take advantage of flexible spending accounts to pay for qualifying healthcare expenses with pre-tax funds.  Generally the maximum contribution to a flexible spending account is $5,000 per year.  The Senate bill would reduce this maximum to $2,500 per year.  This provision is all about raising additional revenue and is in effect an additional tax.  Lowering the maximum contribution simply results in more of an individuals earnings being subject to income tax.  I thought we wanted to encourage people to spend wisely on healthcare.

Extension of First Time Homebuyer Tax Credit

Included in a bill to extend unemployment benefits to many Americans is an extension of the First Time Homebuyer Tax Credit.  The credit is currently slated to expire on November 30, 2009.

As would be expected, Congress continues to tinker with tax law provisions like this credit.  The proposed credit would not longer be limited to first time buyers who may be able to claim an $8,000 credit, but would be expanded to people who have owned a home for at least five of the last eight years.  Those individuals could get up to a $6,500 credit on the purchase of a new residence.  I suspect the name of the credit will need to be changed to the "First, Second, Third and possibly Fourth Time Homebuyer Tax Credit".

Annual income limits (before the credit begins to phase out) to claim the credit are proposed to increase to $125,000 for individuals and $225,000 for married couples.

To qualify purchase contracts would need to signed before April 30, 2010 and closing would need to occur before June 30, 2010.  The proposal also limits the cost of the new home to $800,000.  That's a lot of house...

Any tax advice contained in the body of this blog was not intended or written to be used and cannot be used, by the reader for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.