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Patient Protection and Affordable Care Act of 2010 Upheld by the Supreme Court, and How We'll Pay For It

By Autumn Ronda

On June 28, 2012, the Obama Administration was successful in its battle to have the Supreme Court uphold most of the provisions of the Patient Protection and Affordable Care Act of 2010 (the "Act").  In an effort to fund the Act, beginning January 1, 2013, taxpayers at higher income levels will feel the pinch of the new taxes included in the bill, which initially passed in March, 2010.

The first tax is a .9% increase in the Medicare Hospital Insurance Tax portion of FICA on wages over $200,000 ($250,000 for couples, $125,000 for married filing separately). Generally, every wage earner owes a 2.9% tax, which is split between the employee and the employer. Under the new tax, the additional .9%, which brings the total Hospital Insurance Tax for these high earners to 3.8%, is payable entirely by the employee.  Self-employed persons will be equally affected by a .9% increase Hospital Insurance Tax portion of the SECA tax on self-employment, subject to the same income limits.

The second tax, called the Unearned Income Medicare Contribution Tax, is a tax on lesser of net investment income, or the excess of Modified Adjusted Gross Income over the threshold amount of $200,000 (or $250,000 for couples, $125,000 for married filing separately), at a 3.8% flat rate.  Investment income is a broad category including, but not limited to, most interest, rents, dividends, royalties, capital gains from the sale of stocks and bonds, and passive rental and business income. Even taxable gain on the sale of a home is hit by this new tax to the extent the gain exceeds the Section 121 exclusion for the sale of a principal residence.  The tax on investment income not only affects individual taxpayers, but also can have a significant effect on the income taxes owed by trusts and estates. 

The effort to raise revenue to pay for the costly healthcare act has made two very significant changes to the tax system. Historically, the tax on wages to fund Medicare has been a flat tax and has only been imposed on earned income. The new .9% tax will impose a progressive Medicare Hospital Insurance Tax on wages, and the new Unearned Income Medicare Contribution Tax of 3.8% will impose a Medicare tax on investment income which previously did not exist.

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Geoffrey Weg Speaks on 2012 Income Tax Updates at Beverly Hills Bar Association

Tax attorney Geoffrey A. Weg, who was recently appointed for the third year as Vice Chair of the State Bar’s Taxation Section Executive Committee, will speak on recent income tax developments, including new laws and noted Tax Court opinions, at the Beverly Hills Bar Association luncheon on Thursday, August 23 at the Association's offices in Beverly Hills.

The presentation has been approved for Minimum Continuing Legal Education credit by the State Bar of California.

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Autumn Ronda Speaks to the California Society of CPAs, Estate Planning Committee

Tax and Estate Planning attorney Autumn Ronda, spoke to the California Society of CPAs, Estate Planning Committee at an August 8, 2012 panel titled "Wealth Transfer Strategies in Low-Interest Rate Environment." 

The program detailed those advanced estate planning strategies that are specifically helped by the recent historically low interest rates, including Grantor Retained Annuity Trusts, Charitable Lead Annuity Trusts, Sales to Intentionally Defective Grantor Trusts and Intra Family Loans.

Contact Autumn Ronda