After three years of being in effect the Health Care Law is gaining speed and beginning to make an impact on many aspects of our lives whether it is as an employee, employer or happily retired. The complexities about the health care aspects are much greater than can be addressed in this space. If you are an employer I strongly recommend that you be in touch with your insurance people in order to go through the myriad details and how they affect your operations. For this space, however, we will address only the new taxes many of Raskob Kambourian’s clients will be facing this coming year.
The first tax is for those whose W-2 income (Medicare wages) is over $200,000. At the point your gross income reaches that level, the employer is to begin withholding the additional .9%. This will show as a Medicare tax in box 5 of the W2 and the tax preparer will take the excess to the tax return for computation. Remember even if both husband and wife do not have $200,000 in Medicare wages, but they have a combined amount of $250,000 (yes, the amounts are different) then the computation is handled on the tax return only and extra has not been paid possibly causing a shortfall of taxes in 2013.
If you have a side job or are self-employed, this income is also subject to the netting. Self-employed losses do not net for purposes of the computation. This is also true for loss on a K-1. A gain on a K-1 for partnerships is again part of this computation.
The second tax is the 3.8% surtax. A summary as written by Jennings Advisory Group is “for tax years after 12/31/2012 the new unearned income surtax of 3.8% applies to the lesser of unearned net investment income or Modified AGI over a base amount. The tax applies to individuals, estates and trusts. The base amount for individuals is $250,000 for MFJ or surviving spouse, $125,000 for MFS and $200,000 for all other filing statuses. For estates and trusts the threshold is the level at which the trust enters the highest tax bracket. In 2012 for trusts that figure was $11,650. The base amounts are NOT indexed for inflation.”
The computation for various aspects of this tax take into account various items but the base computation is on interest, dividends, capital gains, passive income and most rentals, distributions from S Corps and Partnerships, real estate professional income when gross income is over the above mentioned thresholds. Social Security and retirement distributions are not part of this computation nor is gain on a qualified home sale.
There is much to consider for those in the higher brackets. If you have wage income, getting the employer to consider more fringe benefits that do not go to the W2, charitable rollovers to keep income below the 3.8% is another option. We strongly recommend that you make your appointment for tax planning soon so we can help you keep the income for tax purposes as low as possible.
Raskob Kambourian Financial Advisors is an independent, fee-only comprehensive financial advisory firm registered with the Securities and Exchange Commission. We offer expertise, competitive pricing, and personalized financial services to meet your “Life Planning” needs.