TAX PLANNING


Your Tax Bill for the Health Bill

The landmark health-care reform law will extend medical coverage to millions of uninsured Americans. But an elite few will be expected to pick up much of the tab. Beginning in 2013, employees and self-employed individuals will pay an additional 0.9% Medicare tax on earnings above $200,000 ($250,000 for married couples filing jointly). And, for the first time, a 3.8% Medicare tax will be applied to unearned income -- including interest, dividends, capital gains, rents and royalties -- above the same threshold amounts. (Tax-exempt interest and retirement-plan distributions will not be included in the "modified adjusted gross income" that triggers the tax.)

The two taxes will be applied independently. So, for example, a single person with wages of $190,000, investment income of $30,000 and a modified AGI of $210,000 would avoid the 0.9% surtax on earnings but would owe $380 for the 3.8% Medicare tax on the $10,000 that exceeded the $200,000 threshold.

Alternatively, if you earned $300,000, had $60,000 in investment income and had a modified AGI of $350,000, you would pay both the 0.9% wage-based tax on the $100,000 that exceeded the threshold, adding $900 to your tax bill, plus the 3.8% Medicare contribution on the full $60,000 of unearned income, adding another $2,280. Grand total: $3,180.

In some cases you don't have to have deep pockets -- or any pockets -- to pay more. Tanning-booth aficionados, for example, will have to pay a new, 10% tax on indoor tanning sessions starting July 1.

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