The Affordable Care Act and Estate Planning in New York

With the recent launch of the President’s health insurance marketplaces across the country, the Affordable Care Act has taken on a much more tangible character. Over 36 states are participating in the federally run internet exchange, while New York is one of a dozen of states running separate markets with its own operating system. The New York exchange is known as the “New York State of Health.” In just a few months, the Affordable Care Act (ACA) will come into full effect. While parts of the law are already in place, 2014 will bring in a whole new set of changes, including dozens of tax provisions that can be difficult to understand.

With this in mind it is important to understand if and how the Affordable Care Act may affect your estate planning. Some of the provisions may have a relatively uncomplicated impact on your future. For example, nonmedical withdraws from health savings accounts will be taxed at 20%. Additionally, using pre-tax flexible spending accounts on nonprescription medications will be prohibited.

Other parts of the ACA’s provisions, though, are exceedingly complex. Careful planning and advice will be necessary to ensure that you can reduce your overall tax liability. One of the largest effects to your estate comes from the investment income surtax of 3.8%, which applies to the lesser of the investment income or the amount that income exceeds over the threshold. The threshold is $200,000 of Adjusted Gross Income (“AGI”) for unmarried filers or heads of household, $250,000 AGI for married filing joint, $125,000 AGI for married filing separate filers, and $12,000 AGI for trusts and estates. Further, there is an additional Medicare Earnings Tax on earnings above $200,000 for unmarried filers, $250,000 for married filing joint, and $125,000 for married filing separate filers. There is little that people can do to avoid these taxes, which will go up .9% from the existing rate to 2.35%. That is, except if you decide to earn less money!

You, however, are not without options concerning the new surtax. For example, investors can use Roth IRAs, which do not count as taxable income.

The American Institute of CPAs has put together a number of useful articles and webinars to help you better understand the how the ACA will affect your finances. Check out their site here and be sure to keep up to date on all of our analysis as the ACA continues its rollout!

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