Medicare Tax on Unearned Income

[billt]

On page 1-11 of the new Tax Book, it says "Effective Jan 1, 2013 3.8% tax will be imposed to the lesser of Unarned Income, OR the excess of modified AGI over
the threshold amount"
Is this tax gonna hit everyone with investments as I read it?
Thanks,
billt

[Burke]

I think the threshold amount is rather high, $250K MFJ and $200K for individuals. It would apply only to the EXCESS over that, is the way I understand it. I have heard such misinformation as "did you know you will have to pay 3.8% on the sale of your house?!" bandied about, when the truth of the matter is, up to $250K ($500K MFJ) of profit on the sale of a personal residence is excluded up front just like now, so it would only apply to profit in excess of those excluded amts, and then only to the extent of the MAGI amount the TP had over the threshold, or the unearned income whichever is less.

[Nashville]

Simple Answer is Yes

Bill, as stated the answer would be "Yes." As I read it, a paltry $100 in unearned income will have a separate tax of $4 for medicare. Amounts over the $200K/$250K threshold will already be subjected to the tax irrespective of the nature of the income.

Remains to be seen whether they will tamper with this between now and then.

There is a groundswell of people believing Obamacare will be
1) Declared Unconstitutional by the Supreme Court, or
2) Rescinded by Congress.

As much as I would like to see it gone, I don't think it is going to happen. The Court allows the mandate for people to have to pay tax - they can allow a mandate for anything else, under the constitutional language "promote the common good."

Congress exalts its intention to sweep new members in at election time who will get rid of the Healthcare Legislation. Without getting into partisan politics, none of them tell you that the legislation has been a Godsend to large health insurance companies, with virtually no benefit to the population at large. The "big money" will be intent on keeping this healthcare law, and we can guess whether these new members will do the monumental task of slugging a rescission through both houses of congress.

[appelman]

But the correct answer is "NO."

The formulation in the Tax book is misleading. Burke has it right. The tax only applies to taxpayers with AGI over the threshold. See, for example:

http://www.realtor.org/small_business_health_coverage.nsf/pages/health_ref_faq_med_tax?opendocument

[Burke]

There are any number of sites available via Google which confirm this, including the IRS's. Unfortunately, at first blush, the TTB blurb can be miscontrued to refer to any unearned income regardless of amt. Additionally, it appears that employers will be required to withhold on earnings/wages over $200K. That can be an issue. I suppose there will be a way to get it back as excess tax if they qualify?

[Bees Knees]

On page 1-11 of the new Tax Book, it says "Effective Jan 1, 2013 3.8% tax will be imposed to the lesser of Unarned Income, OR the excess of modified AGI over
the threshold amount"
Is this tax gonna hit everyone with investments as I read it?
Thanks,
billt

The wording is right out of the code. It says the lesser of unearned income, or the excess of modified AGI over the threshold amount. If the threshold amount is $250,000, and modified AGI is only $100,000, then the excess of modified AGI over the threshold amount would equal zero, which is less than any net investment income the taxpayer may have.

3.8% of zero = zero.