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Federal Employees News Digest : Nov 4, 2013
When the U.S. Supreme Court in June 2012 upheld the Patient Protection and Affordable Care Act of 2010 (commonly called the Affordable Care Act, or ACA), many federal employees started to pay close atten- tion to the sweeping changes coming to the U.S. health care system. Perhaps the biggest change resulting from the ACA is that effective Jan. 1, 2014, every individual must have health insurance, either through an individual plan or through a group plan. To make it easier for indi- viduals to buy health insurance, health care exchanges administered mostly by the states and the District of Columbia are currently available. These exchanges allow individuals to buy individual health insurance with no pre-existing condition exclusions. Fortunately for federal employees and their families, the Federal Employees Health Benefits (FEHB) program is considered to be "creditable" coverage and employees need not shop on the health care exchanges to be in compliance with the ACA. But there are parts of the ACA that do affect federal employees. In the first of five columns discussing the effect of the ACA on employees, this column discusses the increase of the medical expense deduction "floor" from 7.5 percent to 10 percent of an individual's adjusted gross income (AGI), effective Jan. 1, 2013. Under a special rule, those indi- viduals who are 65 or older in 2013, 2014, 2015 or 2016 will continue to be subject to the previous 7.5 percent of AGI floor amount. Medical-oriented expenses will be deductible on an individual's 2013 income tax returns, subject to the following IRS rules: (1) an individual must itemize (file Schedule A) and not claim the standard deduction; (2) out-of-pocket medical, dental and vision expenses had to be paid or charged via a credit card during 2013; (3) out-of-pocket medical, dental and vision expenses paid for one's self and spouse and tax depen- dents are includible; and (4) out-of-pocket medical, dental and vision expenses include co-payments, co-insurance, deductibles, the cost of travel needed to get medical care---this includes tolls, parking fees and standard medical mileage (23 cents per mile during 2013) that are not reimbursed through a health care flexible spending account. For some individuals, there will likely have to be an increase in the amount of out-of-pocket medical, dental and vision expenses in order to deduct any of these expenses on their 2013 income taxes, as the following example illustrates: Winfred is married to Pauline and both are 60 years old. They file a joint tax return for 2013. Their AGI during 2013 is $120,000. They have $12,000 in out-of-pocket medical expenses. Under the new rule effective Jan. 1, 2013, Winfred and Pauline are allowed to deduct out-of-pocket medical expenses exceeding 10 percent of their AGI. Ten percent of $120,000 is equal to $12,000. Winfred and Pauline are allowed to deduct $0 ($12,000 less $12,000) of medical expenses on their 2013 income tax return. Federal employees should be aware that the FEHB premiums they pay are deducted from their gross (before-tax) salary, called "premium conversion." Employees who have dental and vision insurance through the Federal Employees Dental and Vision Insurance Program (FEDVIP) have the premiums they pay deducted from their gross salary. As such, FEHB and FEDVIP employee-paid premiums may not be counted as out-of-pocket medical expenses. Unlike the FEDVIP, employees can elect out of premium conversion and have their FEHB premiums deducted from their "after-tax" salary. In so doing, they can include the FEHB premiums paid toward their medical expenses. An employee may elect out of premium conversion during the annual FEHB "open season," to be held Nov. 11 through Dec. 9, 2013. In so doing, the employee's FEHB premiums paid in 2014 will be counted toward out-of-pocket medical expenses and may be deductible if the FEHB premiums together with other out-of-pocket medical, dental and vision expenses exceed 10 percent of the employee's 2014 AGI. The following are some considerations and recommendations for employees with respect to the medical expense deduction for 2014: 1. If an employee during 2014 expects to incur some significant out-of-pocket medical, dental or vision expenses not covered by insurance, and by including the FEHB premiums paid this will result in total out-of-pocket expenses exceeding the 10 percent of AGI threshold, then the employee should consider electing out of premium conversion. An employee can waive premium conversion during the FEHB open season by obtaining, completing and return- ing a waiver election form from the employee's personnel office. 2. One often overlooked medical expense is the cost of a smoking- cessation or weight-loss program if the cost is incurred to treat a disease such as obesity, hypertension or heart disease, as diagnosed by a physician. 3. If an employee is not enrolled in FEDVIP dental and/or vision insurance plans, then the following are includible as medical expenses: (a) eye exams; (b) eye glasses and contact lenses; (c) laser eye surgery and radial keratotomy; (d) root canals; and (e) orthodontics. 4. With some limitations, capital improvements made to one's per- sonal residence are includible as medical expenses if the improvements are needed to ease a specific health condition of the individual or of a dependent. Learn how to select the right health plan for 2014 with Edward A. Zurndorfer's special series of weekly Federal Daily Open Season col- umns---appearing this month only at FederalDaily.com. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor The effects of the Patient Protection and Affordable Care Act: Part I November 4, 2013 Vol. 63, No. 16 10 Visit us on the Internet at www.FederalDaily.com
Oct 28, 2013
Nov 11, 2013