The Healthcare Act & New Taxes in 2013 (Part 2)
THE HEALTHCARE ACT AND NEW TAXES IN 2013
By: Don Thomas
In my recent Blog – Part 1 I was discussing that there are new taxes in 2013 and in later years. Are you aware that this Healthcare Act or Obamacare contains 20 new taxes or tax hikes starting in 2013 and future years?
There are actually five new taxes that occur in 2013. Those five new taxes are listed below:
A. Medicare Surtax on Earned Income
B. Net Investment Income Tax
C. Increased Threshold for Medical Expenses
D. Limit on Flexible Spending Accounts
E. Medical Device Tax
In my previous Blog – Part 1 I discussed the Medicare Surtax on Earned Income and in this Blog – Part 2 we will discuss the second 2013 tax at this time and will send out other blogs to discuss the other taxes later.
The next tax is the Net Investment Income Tax which starts in 2013 and is a 3.8% Net Investment Income Tax that is imposed on individuals, estate and trusts. It is expected that this tax will raise $123 billion to fund the new Healthcare Act.
Net Investment Income is defined as gross income from interest, dividends, annuities, royalties, passive trade or business income such as limited partnerships. Also rental income is included unless the rents are the ordinary income from a business such as a property management business. For individuals the tax is the lesser of the individual’s net investment income for the year or any excess of this tax term “modified adjusted gross income, MAGI” for the year over a threshold amount. What are the threshold amounts? The threshold amount is $200,000 for single taxpayers and head of households and $250,000 for married filing joint taxpayers.
I have provided some examples to help you understand the impact of this tax. In this example we have a married couple who files a joint return and combined they earn $275,000 in wages and/or self employment income. They also have $25,000 of “net investment income” in 2013. Assuming that they have a total modified adjusted gross income or MAGI of $300,000, the couple will pay a 3.8% Net Investment Income Tax on the lesser of 1) $25,000 net investment income or 2) $50,000 ( $300,000 MAGI – $250,000 threshold discussed earlier.) With this example the couple will pay $950 ($25,000 net investment income x 3.8%) for the Net Investment Income Tax in 2013.
Let’s look at another quick example to help you better understand this tax. In 2013 an unmarried taxpayer received no wages or self employment income but lives only from her $1 million in “net investment income” from a stock and bond portfolio. Assuming a $1 million MAGI, she will have to pay a 3.8% Net Investment Income Tax on the lesser of her 1) $1 million net investment income or 2) $800,000 ($1 million – $200,000 threshold). As a result she will pay a $30,400 ($800,000 x 3.8%) net investment income tax in 2013.
Hopefully the examples helped you understand the tax impacts of this new tax. It seems like a small percentage but can add up based on an individual’s tax situation.
Here is some good news that may help an individual minimize the tax impact. The 3.8% Net Investment Income Tax does not include items such as interest on tax-exempt bonds, veteran benefits, and excluded gain on the sale of a principal residence that would be excluded from taxable income. Also, at the present time S corporation profits in an active trade or business are not considered as either earned income for the .9% Medicare Surtax discussed in my previous blog or for the 3.8% Net Investment Income Tax.
Due to the different tax situations you or others may experience I recommend that you talk with a tax professional that understands these laws and your tax situation to provide the professional guidance you might need in your situation.
I will be discussing the additional 2013 and future taxes and penalties resulting from the Healthcare Act in my next blogs. Thanks.
(Information provided courtesy of Health Care Taxes By Hasselback)
- 5 New Tax Laws That Can Cost Business Owners Dearly (smallbiztrends.com)
- Medicare Surtax Planning (wallstreetpit.com)
- Orlando Business Taxes & The Affordable Healthcare Act 2013