1. f carruba says

    the 3.8% payroll tax is particularily harsh on those retired with higher incomes, who were previously self employed. for example assume you have a retired couple with $400k in earned income like dividends. the full amount over the $250k threshold would be subject to the 3.8% tax. but if that same couple had a $400k annual distribution from a pension plan or a 401K, there is no extra tax from obamacare.

    and of course the expiration of the bush tax cuts just adds to this BOOM for the retired higher earners.

    if the bush tax cuts are extended for individuals making less than $200k, it might be advantageous for that example higher income couple to get divorced and split their assets and their income and stay under the threshold???

  2. Harry Sit says

    Self-employed people are in the best position to shelter income in tax advantaged accounts. If they didn’t do that, they must have had a very incompetent accountant. In addition, don’t you need something like $20 million to get $400k in dividends today? I wouldn’t worry about a $5,700 tax if I have $20 million.

    I agree it would be financially advantageous to get divorced. Whether dodging a small amount of tax is worth the emotional tear is the question. Maybe for those whose love is not so fixated on a piece of paper. I always hear this as a hypothetical. I don’t know anybody who actually pulled it off.

  3. f carruba says

    harry, actually it takes only about $6 million in assets if you are earning around 6% on preferred stocks. money just aint what it use to be.

    also, the biggest increase coming is not from the obama care tax but for the increased taxes resulting from the failure to extend the bush tax cuts. taxes on qualifying dividends goes from 15% to possibly the highest rate of 39.6%, plus the 3.8%. the presidents current proposal is that the bush tax cuts be extended for individuals making less than $200k, and $250k for a joint return. so this type of income could see an increase of as much as 28.4%

    who knows the details of how the extension of the bush tax cuts, if any, will take place. but every since obama has been in office, he has defined the high income earners as $200k and $250k. what ever the issue, this seems to allow for a substantial marriage tax penalty.

  4. Harry Sit says

    f carruba – I completely agree with you on the issue of marriage penalty. I don’t care if they do it at 200k/400k or 125k/250k. The marriage penalty in this simply doesn’t make sense.

    On the issue of qualified dividends, it depends on what you compare against. Dividends had been taxed as ordinary income for a long time before the Bush tax cuts. You could say dividend earners have enjoyed a very long vacation. It’s time to go back to work. We always wish our vacation is longer but we also know we can’t be on vacation forever. Going back to work is just normal.

  5. f carruba says

    so harry, you don’t believe there is justification for and a sense of fairness for the 15% rate because of the double taxation issue?

    did you know the 15% rate for divdends was initially proposed by john kerry?

    there is no normal in the tax code. every single item gives preference to one group of tax payers over another. the home owner gets preference over the renter; as my first comment stated obamacare gives the receiptient of 401k distributions and pension benefits preferences over the individual who accumulated his assets the hard way, on an after tax basis; california tax payers get a deduction for state income taxes while texas tax payers do not; wages in the form of 401k benefits and medical benefits are tax free, while many do not have access to such; etc.

  6. Harry Sit says

    I don’t see a problem. Income is income. If taxing dividend as ordinary income is so unjust, I don’t know why it had to wait for a John Kerry to correct it. You ask Texas taxpayers if they’d like to move to California so they can get a deduction on the California state income tax they will pay.

  7. David C says


    This Texan is not willing to move to California just for the ability to deduct state income taxes… I’ll gladly pay Washington a wee bit more to avoid paying Sacramento anything. 🙂

    (of course I certainly see some perks to prefer living in CA over TX… but taxes/finances is not one of them)

  8. Financial Samurai says

    Marriage tax is such a shame.

    I’m figuring out how to legally shield 80%+ of my income from 2013 forward. Part of it is just not making much 🙂

  9. NHThinker says

    If I’m a 30-yr old engineer making $80K/year and buying a $400K house, given normal rates of inflation on income and house prices, should I expect to pay this tax if I plan to sell my house in 25 years and the law does not change.

    The law impacts about 2% of home sellers next year: what percentage of home sellers will it impact in 25 years if the law does not change?

  10. Harry says

    NHThinker – Let’s see, say you are single and you remain single. If you stay with the same home for 25 years (rare), your $400k home will be worth $837k at a 3%/year price appreciation rate. Your gain will exceed the $250k exclusion limit by about $187k. The solution: don’t stay in your home for that long. Sell it in year 17 when the appreciation is close to the exclusion limit ($250k single, $500k married). Or get married to get double the exclusion limit. For your salary, if we use the same 3% increase a year, it will be $167k in 25 years. You are still under the $200k line. So you will be OK on that one.

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