health insurance
NEW YORK (Dow Jones)--With the House health bill passed and action moving to the Senate, financial advisers are running the numbers to see how a health-care overhaul could affect their wealthy clients.
"Our biggest concern is how it could affect the tax liability of our clients," says Stephen Baxley, director of Client Tax and Financial Planning at Bessemer Trust.
The House???s bill would impose a tax of 5.4% on individuals with annual modified adjusted gross income exceeding $500,000 or for couples with $1 million a year, effective from January 2011.
Baxley says the surcharge would hit clients harder than simply increasing the top income-tax rate bracket. That's because income tax is applied after itemized deductions are taken into account. In contrast, the proposed surcharge would apply to the gross income base.
For instance, a couple's taxable income after deductions may be $700,000, but their gross income might be $1.2 million, making them subject to the surcharge. Plus, the surcharge isn't linked to inflation, meaning more clients would be affected over time, Baxley says.
"It could be a bigger hit than many may expect," he says.
The surcharge is projected to raise about $461 billion in revenue ??? almost half of the cost of the measure passed by the House Saturday. The bill would spend slightly more than $1 trillion over a decade to provide health insurance to an additional 36 million Americans by 2013.
The Senate is in the process of assembling a bill that will look markedly different from the House legislation. In contrast to a tax on the wealthy, it would impose an excise tax on high-cost insurance plans to raise revenue.
The idea is to tax so-called "Cadillac" insurance plans - policies that supposedly are so expensive because they contain generous benefits - to raise about $201 billion over the next decade ??? about a quarter of the proposed bill's $829 billion cost.
Back in September, the Senate Finance Committee proposed levying a 40% tax on premiums above $8,000 for individuals and $21,000 for family plans, starting in 2013. (These threshold values would be indexed to the consumer price index plus 1%.)
Lawmakers are likely to increase the cost thresholds at which the tax would kick in, in order to lessen the impact on comprehensive insurance plans negotiated by unions or individuals whose premiums are high because they are more costly to insure. However, other groups, such as Wall Street firms and other businesses, are unlikely to get a break from the tax, which insurers are expected to pass on to employers.
M. Holly Isdale, a managing director at Bessemer Trust, says the firm is looking at strategies for employers, such as keeping the basic plan below the "Cadillac level" and giving bonuses or extra salary to allow employees to purchase supplemental coverage.
However, with the House bill passing with a much narrower margin than expected and a much tougher battle likely in the Senate, the affluent may not have to worry about their pocketbooks just yet.
Still, with the fate of the estate tax unknown, and other taxes, such as capital gains, widely expected to go up, advisers are gearing up their clients to be as tax-efficient as they can in 2010 before rates go up.
NEW YORK (Dow Jones)--With the House health bill passed and action moving to the Senate, financial advisers are running the numbers to see how a health-care overhaul could affect their wealthy clients.
"Our biggest concern is how it could affect the tax liability of our clients," says Stephen Baxley, director of Client Tax and Financial Planning at Bessemer Trust.
The House???s bill would impose a tax of 5.4% on individuals with annual modified adjusted gross income exceeding $500,000 or for couples with $1 million a year, effective from January 2011.
Baxley says the surcharge would hit clients harder than simply increasing the top income-tax rate bracket. That's because income tax is applied after itemized deductions are taken into account. In contrast, the proposed surcharge would apply to the gross income base.
For instance, a couple's taxable income after deductions may be $700,000, but their gross income might be $1.2 million, making them subject to the surcharge. Plus, the surcharge isn't linked to inflation, meaning more clients would be affected over time, Baxley says.
"It could be a bigger hit than many may expect," he says.
The surcharge is projected to raise about $461 billion in revenue ??? almost half of the cost of the measure passed by the House Saturday. The bill would spend slightly more than $1 trillion over a decade to provide health insurance to an additional 36 million Americans by 2013.
The Senate is in the process of assembling a bill that will look markedly different from the House legislation. In contrast to a tax on the wealthy, it would impose an excise tax on high-cost insurance plans to raise revenue.
The idea is to tax so-called "Cadillac" insurance plans - policies that supposedly are so expensive because they contain generous benefits - to raise about $201 billion over the next decade ??? about a quarter of the proposed bill's $829 billion cost.
Back in September, the Senate Finance Committee proposed levying a 40% tax on premiums above $8,000 for individuals and $21,000 for family plans, starting in 2013. (These threshold values would be indexed to the consumer price index plus 1%.)
Lawmakers are likely to increase the cost thresholds at which the tax would kick in, in order to lessen the impact on comprehensive insurance plans negotiated by unions or individuals whose premiums are high because they are more costly to insure. However, other groups, such as Wall Street firms and other businesses, are unlikely to get a break from the tax, which insurers are expected to pass on to employers.
M. Holly Isdale, a managing director at Bessemer Trust, says the firm is looking at strategies for employers, such as keeping the basic plan below the "Cadillac level" and giving bonuses or extra salary to allow employees to purchase supplemental coverage.
However, with the House bill passing with a much narrower margin than expected and a much tougher battle likely in the Senate, the affluent may not have to worry about their pocketbooks just yet.
Still, with the fate of the estate tax unknown, and other taxes, such as capital gains, widely expected to go up, advisers are gearing up their clients to be as tax-efficient as they can in 2010 before rates go up.
