Two New Medicare Taxes for High Income Earners

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Feb 8

Two New Medicare Taxes for High Income Earners

By Loree Dubois

Widely unknown and a little stealthy, Congress passed two tax increases in 2010 as a sliver of the Health Care Reform Act.  These two increases become effective January 1, 2013 and will increase the amount of Medicare tax paid by certain high income earners.

The first new tax is a 3.8% medicare surcharge on investment income. 

  1. For purposes of this tax investment income is defined to include taxable interest and dividends, long and short term capital gains, annuity income, passive rental income and royalties.
  2. Distributions from pensions and other retirement accounts are not considered investment income.
  3. The 3.8% tax is assessed on the smaller of taxpayer’s net investment income or the amount of Modified adjustment gross income in excess of a threshold amount.  The threshold modified AGI amount is $200,000 for single filers and $250,000 for married joint filers.

The second new tax, also effective January 1, 2013, is a .9% medicare surtax on wages and self-employment income in excess of the above noted threshold amounts.

You don’t want to be caught off guard with your tax planning or forget to pay these on time.  If you’re unsure of whether or not you’ll be penalized for the High Income Earner Medicare Tax and don’t want to end up owing thousands—feel free to contact me for help decoding your potential tax increases.

 

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