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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Paying for Health Care Reform

Posted by Autumn Ronda

Starting in 2013, taxpayers at higher income levels will feel the pinch of two new tax hikes included in the Health Care bill that passed in March. The first is a .9% increase in the Medicare tax on wages over $200,000 ($250,000 in the case of a couple). Generally, every wage earner owes a 2.9% Medicare tax, which is split between the employee and the employer. Under the new tax, the additional .9%, which brings the total Medicare tax for these high earners to 3.8%, is payable entirely by the employee.

The second tax contained in the bill is a Medicare tax on investment income at a 3.8% flat rate for taxpayers with a modified adjusted gross income of $200,000 (or $250,000 for couples). Investment income is a broad category including, but not limited to, most interest, rents, dividends, royalties, capital gains from the sale of a stocks and bonds, and passive rental and business income. Even any taxable gain on the sale of a home is hit by this new tax. 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.


Congress’s effort to raise revenue to pay for the costly healthcare bill has made two very significant changes to the tax system. Historically, the tax on wages to pay for Medicare has been a flat tax and have only been imposed on earned income. The new .9% tax on wages will impose a progressive Medicare on the previously flat tax, and the new 3.8% tax will impose a Medicare tax on investment income which previously did not exist.

Contact Autumn Ronda