Comments on: 3.8% Medicare Tax on Unearned Income in Health Care Reform Bill http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html like a friend telling you about money ... Wed, 23 May 2012 21:42:04 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: TFB http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-7959 TFB Sat, 11 Feb 2012 18:56:01 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-7959 @Jim - I guess I wasn't clear enough about the "push" effect. Suppose you have $200k from pension and 401k withdrawals, and you have $100k from dividends and capital gains, you will pay the 3.8% surtax on $50k (the excess over $250k). You start SS and you get $50k, 85% of which is taxable. It increases your income by $42.5k. Now you will pay the 3.8% surtax on $92.5k of your $100k dividends and capital gains. Although the surtax isn't officially levied on SS income, it has the same effect. Now suppose you have $300k from pension and 401k withdrawals and only $10k from dividends and capital gains. You will pay 3.8% surtax on $10k. Adding SS income won't increase your surtax. The official answer is no, the 3.8% tax isn't applied to SS income but it can have the same effect depending on your income composition. The same effect also exists for pension, 401k and IRA withdrawals. @Jim – I guess I wasn’t clear enough about the “push” effect. Suppose you have $200k from pension and 401k withdrawals, and you have $100k from dividends and capital gains, you will pay the 3.8% surtax on $50k (the excess over $250k). You start SS and you get $50k, 85% of which is taxable. It increases your income by $42.5k. Now you will pay the 3.8% surtax on $92.5k of your $100k dividends and capital gains. Although the surtax isn’t officially levied on SS income, it has the same effect.

Now suppose you have $300k from pension and 401k withdrawals and only $10k from dividends and capital gains. You will pay 3.8% surtax on $10k. Adding SS income won’t increase your surtax.

The official answer is no, the 3.8% tax isn’t applied to SS income but it can have the same effect depending on your income composition. The same effect also exists for pension, 401k and IRA withdrawals.

]]> By: Jim http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-7958 Jim Sat, 11 Feb 2012 17:59:05 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-7958 TBF Thank you for your quick response. Assume we are above the $250,000 filing a joint return. I understand that qualified 401k RMD and IRA income are exempt from the 3.8% Obamacare taxation. Why is there such a lack of clarity on the taxable nature of social security income under Obanacare 3.8% taxation? Jim TBF

Thank you for your quick response. Assume we are above the $250,000 filing a joint return. I understand that qualified 401k RMD and IRA income are exempt from the 3.8% Obamacare taxation. Why is there such a lack of clarity on the taxable nature of social security income under Obanacare 3.8% taxation?

Jim

]]> By: TFB http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-7957 TFB Sat, 11 Feb 2012 16:54:04 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-7957 @Jim - It applies to interest, dividends, annuities, royalties, rents, and capital gains. When your Social Security income is taxable and it pushes your investment income above the threshold, it's hard to say whether the tax is on investment income or on Social Security income. If your income isn't above the threshold, it doesn't matter. @Jim – It applies to interest, dividends, annuities, royalties, rents, and capital gains. When your Social Security income is taxable and it pushes your investment income above the threshold, it’s hard to say whether the tax is on investment income or on Social Security income. If your income isn’t above the threshold, it doesn’t matter.

]]> By: Jim http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-7956 Jim Sat, 11 Feb 2012 15:44:38 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-7956 Under Obamacare is the 3.8% unearned income tax applied against social security income or is social security income exempt? Under Obamacare is the 3.8% unearned income tax applied against social security income or is social security income exempt?

]]> By: Len http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-6189 Len Thu, 10 Mar 2011 01:58:40 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-6189 IF A SCHEDULE C IS TRANFORMED TO A PARTNERSHIP (NOT NECESSARILY A FLP) WHERE 50% IS NOT SE INCOME FOR CHILD, IS INCOME COMBINED FOR 3.8% TAX IF A SCHEDULE C IS TRANFORMED TO A PARTNERSHIP (NOT NECESSARILY A FLP) WHERE 50% IS NOT SE INCOME FOR CHILD, IS INCOME COMBINED FOR 3.8% TAX

]]> By: TFB http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-4063 TFB Mon, 24 May 2010 13:27:19 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-4063 Judy - What is this Federal retirement annuity? If it's a pension plan from which you get a monthly income because you worked for the employer for so many years, it's not included. Judy – What is this Federal retirement annuity? If it’s a pension plan from which you get a monthly income because you worked for the employer for so many years, it’s not included.

]]> By: Judy Curtis http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-4062 Judy Curtis Mon, 24 May 2010 13:21:20 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-4062 I understand the 3.8% medicare tax will include interest, dividends, capital gins, annuities, royalties and passive rental income. Can you tell me if a Federal retirement annuity would be excluded? Thanks I understand the 3.8% medicare tax will include interest, dividends, capital gins, annuities, royalties and passive rental income. Can you tell me if a Federal retirement annuity would be excluded? Thanks

]]> By: TFB http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-4049 TFB Wed, 19 May 2010 03:07:54 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-4049 jim - Before I see more details, I believe AMT will absorb this additional tax in full or in part. That is, this will increase the regular tax but it does not increase AMT. If AMT is still higher, your tax is unchanged. If the increase causes your regular tax to exceed your AMT, then your tax will increase by the difference. jim – Before I see more details, I believe AMT will absorb this additional tax in full or in part. That is, this will increase the regular tax but it does not increase AMT. If AMT is still higher, your tax is unchanged. If the increase causes your regular tax to exceed your AMT, then your tax will increase by the difference.

]]> By: jim http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-4048 jim Wed, 19 May 2010 00:30:26 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-4048 How will this new tax interact with the AMT? If you pay AMT rather than regular tax, are you out from under this tax? How will this new tax interact with the AMT? If you pay AMT rather than regular tax, are you out from under this tax?

]]> By: TFB http://thefinancebuff.com/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-3703 TFB Tue, 30 Mar 2010 06:36:10 +0000 http://thefinancebuff.com/2010/03/3-8-medicare-tax-on-unearned-income-in-health-care-reform-bill.html#comment-3703 RSS - From what I can see, yes, it would apply to the portion not categorized as return of capital. RSS – From what I can see, yes, it would apply to the portion not categorized as return of capital.

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