3.8% Medicare surtax could affect you in 2013

Taxes-DueBrand new tax for 2013, but this one is only for higher income taxpayers! This Medicare surtax originates from the Affordable Care Act (AKA “Obamacare”). If you make over $200,000 (single), or $250,000 (married) in a year, you may find yourself paying an additional .9% tax on all earned income (wages, self-employment) above that amount.

If you fall into this category, your employer should withhold the appropriate amount for you if you make over the above limits alone. But, for example, if both you and your wife work, and while separately, neither of you are over the $250,000 in wages, but jointly, you are, you will have to make up and pay the additional amount on your next year’s 1040 return. If you feel this may be you, and you are a taxpayer who prefers a refund at tax time, now is the time to adjust your W-4 to compensate for this expected increase in tax.

The new surtax is not only for wage earners! New this year, unearned income is also affected. Again, if make over the above amounts in a given year, ALL income will be subject to an additional tax, including interest, dividends, capital gains, and other passive activities, such as rent or royalties.

To be clear, it is a tax on the amounts above the thresholds. Say for example, you are single, make, $250,000, and have $25,000 in investment income. A person in this situation would end up paying .9% on the $50,000 wages over the $200,000 threshold, and 3.8% on the $25,000 in investment income.

The waters are still pretty murky on the details of how these rules will pan out. The IRS is working to provide taxpayers and the tax preparation community with concrete answers. The short version is this: If you make over $200,000 (single), or $250,000 (married filing jointly), expect to pay more in taxes this year.

Give us a call today if you have any questions. We would be happy to estimate the implications these rule changes will have on your specific situation.