Healthcare Bill Imposes New Taxes

The healthcare bill passed by Congress in March contained two interesting tax provisions to help pay for the bill. First, it adds an extra 0.9% levy on wages for singles earning over $200,000 and couples earning over $250,000. Second, it adds a 3.8% “payroll” tax on investment income for the same people named above.

The most important questions for taxpayers to ask about these taxes include:

• Might these taxes be repealed before they are supposed to take effect in 2013?
• How does the 0.9% tax work?
• What about the 3.8% tax on net investment income?
• What is investment income?
• Could the 3.8% tax apply to gains on the sale of a home?
• What happens if a taxpayer who owes the new tax on investments also has a large itemized deduction—say, medical expenses or a theft loss?
• Does the 3.8% tax affect trusts and estates?
• What professions are able to avoid this tax?
• What steps do experts recommend to minimize these taxes, other than taking capital gains before 2013 or buying municipal bonds?

For answers to these questions, see Laura Saunders, How the New Wealth Taxes Will Hit You, WSJ, June 12, 2010.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) and James S. Galco (Estate and Tax Planning Advisor, The Private Client Reserve at U.S. Bank) for bringing this to my attention.