How Obamacare Changed Your Taxes: UnitedHealth Group Inc. (UNH), CIGNA Corporation (CI), Aetna Inc. (AET)

Hitting lower-income workers
Those who earn less than the $200,000 and $250,000 thresholds shouldn’t assume that their taxes will be unaffected by Obamacare. New limitations on flexible spending arrangements will hit taxpayers of all income levels, limiting the amount you can set aside tax-free in a flex plan to $2,500 per year. Previously, there was no technical upper limit, although most employers imposed a $5,000 maximum. But for those who have high levels of predictable medical expenses, the forced reduction in flex-plan use could cost you hundreds of dollars in extra income, Social Security withholding, and Medicare withholding taxes.

Moreover, those who rely on deducting medical expenses won’t be able to get as big a tax benefit from them. Obamacare raised the floor on itemized medical expenses from 7.5% of gross income to 10%. That may not sound like much, but it could reduce your deduction by thousands of dollars and thereby increase your tax bill substantially.

Will you get any benefit?
The question, of course, is whether Obamacare’s benefit will exceed the extra taxes you’ll pay. The jury’s still out on that question, but one reason to be somewhat skeptical is the extent to which health insurance stocks have risen lately. Industry giants UnitedHealth Group Inc. (NYSE:UNH) and Humana Inc (NYSE:HUM) haven’t seen big share-price advances, in part because of proposed cuts to Medicare Advantage plans that will affect them particularly harshly. Yet with less exposure to the Medicare Advantage market, peers Aetna Inc. (NYSE:AET) and CIGNA Corporation (NYSE:CI) have risen to 52-week highs on expectations that they’ll reap the benefits of greater numbers of insured people. That in turn suggests that fewer of those benefits will be left for newly covered individuals themselves.

Regardless, as you consider your taxes this year, don’t forget about the new Obamacare provisions. Planning for them now could save you from a big headache down the road.

The article How Obamacare Changed Your Taxes originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends UnitedHealth Group (NYSE:UNH).

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