Part III – Taxes under the Patient Protection and Affordable Care Act
In order to make you aware of changes in tax laws that were enacted in 2013, we at PARTNERSINWEALTH recently sent you two WEALTHWISES. One covered changes to income taxes, and the second changes to estate, gift, and generation-skipping taxes.
This edition will cover the surtaxes created under the Patient Protection and Affordable Care Act: the “3.8% surtax” and the “0.9% Medicare surtax.” These went into effect January 1, 2013
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 since that amount is over the $250,000 trigger. This totals $5,700, which is 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 are 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
There are strategies to lower the impact of these taxes on financially successful households. At PARTNERSINWEALTH, our PERSONALCFOs stay current on new regulations and coordinate with CPAs to create customized plans to mitigate the impact of the tax increases.
If you would like to learn more about how PARTNERSINWEALTH can help with tax strategies, please contact your PERSONALCFO or Jim Waters at 713.964.4028.