Taxes May Have Increased for Some Even Without Affordable Care Act
If the Supreme Court had voted to strike down the health care law rather than uphold it, some parents of young adults may have been in for a surprise.
September 26, 2012
During the heated controversy that gripped the nation in the summer of 2012 as the U.S. Supreme Court deliberated over President Barack Obama's Affordable Care Act, emotions ran high on both sides of the complex issue. Supporters of the new health care law praised the legislation as an important step toward making health care available to those who need it most, while opponents questioned the constitutionality of the law and criticized it for putting financial strain on businesses and taxpayers in an already difficult economic climate. In a decision nearly as controversial as the health care law itself, the U.S. Supreme Court upheld the Affordable Care Act on June 28, 2012.The Tax Implications of Health Insurance Coverage for Adult Children
Even if the Court had struck down the health care law, one of its most popular features would have remained intact, but with potentially surprising consequences: Employers would still have been able to continue offering health insurance benefits to the young adult children of their employees -- but, according to an Associated Press report, taxeswould have gone up for parents who kept their adult children on their health plans.
The relatively uncontested provision of the recent health care reform allows young adults to remain on their parents' health insurance plans until the age of 26. The measure was included in the reform in response to concerns about the high uninsured rate among people ages 18-25, many of whom are just entering the work force and are unable to afford health insurance on their own. An estimated 6.6 million young adults have already taken advantage of this provision, with a Gallup poll indicating that the number of uninsured young people has dropped from 28 percent to 23 percent since the law took effect.
Because the higher age limit for young adults is popular on both sides of the political aisle, many experts believe that employers would continue to offer the option even if they were no longer required by law to do so. However, as economist Paul Fronstin of the Employee Benefit Research Institute explained to the Associated Press, without the Affordable Care Act, many parents of young adults would have wound up paying higher taxes if their grown children remained on their insurance plans. This is because, under the Affordable Care Act, parents can pay for a young adult's coverage out of pre-tax dollars.
If the Supreme Court had struck down the health care law, parents would be required to pay for their grown children's coverage with after-tax dollars, thus raising their overall tax liability. Fronstin estimated that this change could have cost families hundreds of dollars per year in additional tax liability, with high-income parents seeing a greater increase.
If you have questions about your tax liability, or if you have received notice of a tax audit or IRS collections action, seek advice from an experienced tax lawyer in your area.
Article provided by Law Office of Bruce A. Gage
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