3.8% Medicare Tax will take effect January 1, 2013

The Health Care and Education Reconciliation Act of 2010 (Obamacare) contains a provision that will subject certain individuals to a 3.8% “unearned income Medicare contribution” tax beginning in 2013.

The tax will apply to single taxpayers with a modified adjusted gross income (MAGI) in excess of $200,000 and married taxpayers with a (MAGI) in excess of $250,000. MAGI includes wages, salaries, tips and other compensation, dividend and interest income, business and farm income, realized capital gains, and income from a variety of other passive activities and certain foreign earned income.

The amount of tax owed will be equal to 3.8% multiplied by the lesser of (1) net investment income or (2) the amount by which their MAGI exceeds the threshold amounts.

If you are considering selling stocks, bonds, or real estate or have a choice of taking business or farm income in 2012 or 2013 you should consider the additional tax burden that will apply in 2013. Please call us to schedule a tax planning appointment if you will be impacted by this new tax.