President Barack Obama signed the Patient Protection and Affordable Care Act, otherwise known as the Health Care Act, on March 23. And he subsequently signed a second bill that made a variety of changes to the original. Despite the President's signature on these two bills, the debate over healthcare reform that has dominated the country for the past year is not likely to end soon.

So where does that leave high-net-worth investors and the advisors who serve them? As it stands now, there are several significant new taxes and penalties that are officially part of the tax code. The one advantage that taxpayers have is that most of the tax implications don't take effect until at least 2013, and some well past then. This gives taxpayers the ability to plan for these taxes, but also allows time for the rules to change once again.

Additional Tax on Investment Income

The House reconciliation bill included an additional tax on net investment income referred to as the "Unearned Income Medicare Contribution." The tax would equal 3.8% of the lesser of net investment income, or modified adjusted gross income (AGI) in excess of $250,000 for a family ($200,000 for a single taxpayer). Modified AGI for this tax is defined as adjusted gross income increased by any net income excluded under the foreign earned income exclusion. Because this exclusion affects relatively few taxpayers, most individuals should just think of this in terms of AGI.

Net investment income for purposes of this tax includes taxable interest (but not tax-exempt interest), dividends, capital gains, annuities and rental and royalty income. Investment income earned in the course of a trade or business not defined as a passive activity would be exempt from this tax, as would distributions from qualified plans and IRAs. This tax would be effective beginning in 2013.

Additional Medicare Tax on High-Income Taxpayers

Also included in this plan is an increase in the Medicare tax. Today, the tax equals 1.45% of all wages paid to an employee. Beginning in 2013, this rate would be increased by 0.9% to 2.35% for all wages earned by a family over $250,000 ($200,000 for single taxpayers). This tax is only imposed on consumers-there is no change to the Medicare tax paid by employers on those same wages.

Because this tax is imposed on family income, it is possible that neither spouse would be subject to this based on their own income level, but their combined income would put them over the threshold. For example, if each person in a couple earns $150,000, neither would be subject to the higher Medicare tax on their own. However, because their combined income of $300,000 exceeds the $250,000 threshold, the extra $50,000 would be subject to the additional 0.9% tax.

If a taxpayer's own wages exceed the threshold, the employer is required to withhold the additional tax. However, employers aren't required to consider a spouse's income when determining the applicability of this section for their employees. This could mean that a family would be subject to the additional Medicare tax without having it withheld from their wages.

Changes to Deductions for Medical Expenses

>Qualified medical expenses are currently deductible to the extent they exceed 7.5% of the taxpayer's adjusted gross income. Under this act, that floor will be raised to 10% beginning in 2013. For 2013 through 2016, the original 7.5% floor will continue to apply if the taxpayer or their spouse is age 65 or older by the end of the year.

Changes to Health Savings Arrangements

This act makes the following changes to how Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs) and flexible spending arrangements are funded and used.

For 2010, there is a 10% penalty applied to HSA distributions that are not used for qualified medical expenses. For Archer MSAs, the penalty is 15%. This act increases both penalties to 20% beginning in 2011.

For employers that allow employees to defer income into a health flexible spending account, the deferrals will be limited to $2,500 in 2013. Plans that allow for larger deferrals will not be considered qualified plans. This change does not apply to health reimbursement accounts.

The definition of medical expenses has been conformed so that HSAs, MSAs and employer plans all follow the same rules. As a result, only prescribed drugs and insulin will be a qualifying medical expense for these accounts. Expenses for over-the-counter drugs will no longer be eligible for reimbursement or coverage.

Penalties for Not Purchasing Insurance Coverage

This act does not directly mandate that all individuals must purchase insurance coverage. But, beginning in 2014, penalties will be assessed that give strong incentives to individuals to do just that.