In order to make you aware of changes in tax law coming January 1, 2013, we at PARTNERSINWEALTH will be putting out three editions of WEALTHWISE over the next few weeks.
This edition will concern two new surtaxes created under the Patient Protection and Affordable Care Act: the “3.8% surtax” and the “0.9% Medicare surtax.”
How the new surtaxes work
This surtax only comes into effect if certain income (salary, investment, etc.) is over $250,000 for joint filers or $200,000 for single filers.
For example, you and your spouse have $400,000 of income — $240,000 in salary plus $160,000 of investment income (interest, dividends, and capital gains). You would pay a 3.8% surtax on $150,000 of income since it’s over the $250,000 trigger. This totals $5,700 which would be in addition to the usual income or capital gains taxes.
Another example, you and your spouse have income of $270,000. All of it comes from Social Security benefits, pension, and IRA distributions. Since none of these sources of income is subject to the 3.8% surtax, you would not owe any additional taxes.
0.9% Medicare Surtax
This surtax only applies to earned income, like your salary, that is over $250,000 for joint filers or $200,000 for single filers.
For example, if you and your spouse have combined salaries of $300,000, you will pay a tax of 0.9% on $50,000, or $450. This $450 would be in addition to income taxes and existing Medicare taxes.
Another example, you and your spouse have combined salaries of $240,000 and investment income of $160,000. You will not have to pay the Medicare surtax because your salary income is less than $250,000. The Medicare surtax does not consider investment income.
The next step
Your PERSONALCFO will be looking at your personal situation and contacting you in the next few months with recommendations regarding these surtaxes. Your PERSONALCFO will coordinate strategies with your CPA to find the most appropriate course of action.
The next two WEALTHWISE editions will involve changes to estate and gift taxes and to income taxes starting in 2013.