Comments on: 3.8% Medicare Tax on Unearned Income in Health Care Reform Bill

By: Len

Len — Thu, 10 Mar 2011 01:58:40 +0000

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

TFB — Mon, 24 May 2010 13:27:19 +0000

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

Judy Curtis — Mon, 24 May 2010 13:21:20 +0000

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

TFB — Wed, 19 May 2010 03:07:54 +0000

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

jim — Wed, 19 May 2010 00:30:26 +0000

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

TFB — Tue, 30 Mar 2010 06:36:10 +0000

RSS – From what I can see, yes, it would apply to the portion not categorized as return of capital.

By: RSS

RSS — Mon, 29 Mar 2010 19:33:00 +0000

Does the 3.8% tax on unearned income apply to profit distributions to investors who own units in master limited partnerships engaged in operating oil and gas pipelines?

By: John Leney

John Leney — Sat, 27 Mar 2010 00:59:57 +0000

I’m I wrong in thinking that a successful landlord of a fully depreciated apartment complex were the rents average $800-900/mo could be facing a $400/unit medicare tax/fee per year. And if he were to ‘pass along this cost to make himself whole’ would have to raise his rents $600-$700/yr?

By: Sammy_M

Sammy_M — Thu, 25 Mar 2010 17:01:09 +0000

Appreciate your thoughts. It definitely makes sense to be careful where you’re placing your value-oriented equity funds. I may have to rethink my placement of EFV and IJS going forward.

I guess I’d have to see the math, but I’m skeptical that these changes will truly up-end the conventional wisdom of holding taxable bonds in tax advantaged and equity indexes in taxable.

It seems if more demand for munis results, yields will just adjust downward and the cost of capital reduce for the muni govts. So, you’re tax bill might be lower if you use munis, but your after-tax returns might be lower as well.

By: TFB

TFB — Thu, 25 Mar 2010 14:43:30 +0000

Sammy – For the targeted demographic, there are several things going at once: dividend and capital gains tax rate going up; income tax rate going up; deductions are limited; and this Medicare tax on unearned income. There is AMT and state tax too.

In a low interest rate environment, the dividend yield is not that much lower than the bond yield. For at least value equities, it can be more attractive to hold munis in a taxable and hold value equities in a tax advantaged account. I have not done the calculation for a total market index fund yet.

For my tax adjustment, I have been using 1/3. I have not thought about how it should change yet.