Sunday, August 17, 2014

Obamacare Taxes and Fees

In Case You Didn't Notice, as of January 1st:

New levies, courtesy of the Affordable Care Act  include an increase on wages and a tax on investment income, including interest, dividends and capital gains.  And bad news for the more affluent  households, those affected will see tax increases averaging $6,000 next year, economists estimate.

To help finance Medicare, employees and employers each used to pay a hospital insurance tax equal to 1.45 percent on all wages. Starting in January, the health care law requires workers to pay an additional tax equal to 0.9 percent of any wages over $200,000 for single taxpayers and $250,000 for married couples filing jointly.

The new taxes on wages and investment income are expected to raise $318 billion over 10 years, or about half of all the new revenue collected under the health care law.

Since the 1930s, payroll taxes have been levied on the wages of each worker as an individual. The new Medicare payroll is different. It will be imposed on the combined earnings of a married couple.

In the Affordable Care Act, the new tax on investment income is called an “unearned income Medicare contribution.” However, the law does not provide for the money to be deposited in a specific trust fund. It is added to the government’s general tax revenues and can be used for education, law enforcement, farm subsidies or other purposes. 

A new 3.8 percent tax applies to the net investment income of certain high-income taxpayers, those with incomes above $200,000 for single taxpayers and $250,000 for couples filing jointly.

The new tax on unearned income would come on top of other tax increases that might occur automatically, the tax rate on long-term capital gains rose to 20 percent in January. Dividends are now treated as ordinary income and taxed at a maximum rate of 39.6 percent, up from the current 15 percent rate for  most dividends.

Under another provision of the health care law, consumers may find it more difficult to obtain a tax break for medical expenses. Taxpayers have been able to take an itemized deduction for unreimbursed medical expenses, to the extent that they exceed 7.5 percent of adjusted gross income. The health care law changes the threshold for most taxpayers to 10 percent next year. The increase is delayed to 2017 for people 65 and older.

In addition, workers face a new $2,500 limit on the amount they can contribute to flexible spending accounts used to pay medical expenses. Such accounts can benefit workers by allowing them to pay out-of-pocket expenses with pretax money.

Taken together, this provision and the change in the medical expense deduction are expected to raise more than $40 billion of revenue over 10 years. 

In summary:
Top Medicare tax went from 1.45% to 2.35%
Top Income tax bracket went from 35% to 39.6%
Top Income payroll tax went from 37.4% to 52.2%
Capital Gains tax went from 15% to 28%
Dividends tax went from 15% to 39.6
Estate tax went from 0% to 55%

While I don't see these taxes and fees affecting the Occupy Wall Street folks,
they certainly affect both young and old people (let's call them folks who don't live in their parents basements, they are mainly people who work for a living and those who are planning for their children's education or maybe their own retirement).

Dane Hahn as a real estate professional serving Florida's Sarasota and Charlotte Counties. You can reach him at

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