As part of the Patient Protection and Affordable Care Act of 2010 (ACA), also referred to as Obamacare, new taxes were levied on individuals, trusts, and estates. The intention of the ACA was to encourage universal health insurance coverage. To help offset some of the costs from this program, congress enacted new taxes on both unearned and earned income for “high- income” individuals, trusts, and estates which took effect beginning in tax-year 2013.
“High-income” individuals – defined by the tax code as married couples with an AGI above $250k, those married filing separately with AGI above $125k, or any other filers with AGI in excess of $200k.
Trusts and estates – the surtax is applied to income above the top tax bracket threshold of $12,400, but only applies to income that is retained in the trust and NOT distributed to beneficiaries.
There is a 3.8% Medicare tax on unearned income which applies to net investment income above the threshold. Net investment income includes the following:
“High-income” individuals – the 3.8% Surtax is applied to the lesser of:
Trusts & estates – the 3.8% Surtax is applied to the lesser of:
Form 8959 – earned income
The additional Medicare tax on earned income is applied at a rate of .9% to those with wages over the thresholds listed above.
Suggested strategies for mitigating Medicare Surtaxes –
There are at least 5 planning and investment strategies that Bainco suggests to its client which greatly mitigate the complicated web of surtaxes. We invite you to contact Robert and/or Seth in our Wealth Strategies Group – they would be glad to help you strategize a particular clients’ situation and unravel the confusion around these complex rules.
This commentary/ article has been published or selected for distribution by Bainco based on current events and/or topics of interest. It contains the current opinions of the authors as of the date of publication. All opinions are subject to change at any time. This material has been distributed for informational purposes only and is not meant to convey a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell securities or investment services.
Material in this publication, including market forecasts and forward-looking statements, is original and/or derived from proprietary and non proprietary sources Bainco deems to be reliable; Bainco does not, however, warrant the completeness, accuracy or timelessness of the information obtained from these sources. The opinions and statements set forth do not consider the investment objectives or financial situation of any particular individual or group of individuals. Readers will need to consider their own circumstances before making an investment decision and are cautioned to consult their own tax and investment professionals with regard to their specific situations.
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