How ObamaCare will affect your 2013 taxes

August 10, 2012

How ObamaCare will affect your 2013 taxes

Individuals

  • Beginning in 2013, an additional 0.9% Medicare tax applies to wages exceeding $250,000 for joint returns, $125,000 for married taxpayers filing separate returns, and $200,000 for all other filing categories.
  • Beginning in 2013, the additional 0.9% Medicare tax also applies to self-employment income in excess of the thresholds noted above. The deduction for 50% of self-employment taxes does not include this additional tax.
  • The most significant new tax in 2013 is the 3.8% surtax which applies to net investment income of individuals, estates, and trusts with modified adjustment gross income over $200,000 ($250,000 for married couples filing joint returns). “Net investment income” is the excess of gross investment income over allocable investment expenses. Investment income includes interest, dividends, capital gains, annuities, rents, royalties and income from an active trade or business, whether the business is conducted through a sole proprietorship, a partnership, a limited liability company (LLC) or a S corporation; distributions from IRAs, Roth IRAs or other qualified retirement plans; self-employment income; tax exempt bond interest; social security income; life insurance proceeds; and the excluded gain from the sale of a principal residence.
  • Trusts and estates that have net investment income in excess of certain threshold amounts will also be required to pay the 3.8% Medicare surtax, unless the income is distributed to beneficiaries. The distribution of this income will potentially subject the beneficiaries to the Medicare surtax.
  • Unless Congress decides to extend the Bush tax cuts, the tax rates on investment income for 2013 for certain higher income taxpayers will increase as follows: Capital gains tax rate: 20% plus the new 3.8% = 23.8% and Dividends tax rate: 39% plus the new 3.8% = 43.4%.
 Employers
  • Beginning in 2012, employers who filed at least 250 W-2 forms in 2011 must report the cost of employer sponsored health coverage on forms W-2.
  • Beginning in 2013, employers must withhold an additional 0.9% Medicare tax on an employee’s wages in excess of $200,000. There is no matching tax payment required by the employer.

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