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Medicare Taxes in the New Year

The IRS recently issued a series of Proposed Regulations for the 3.8 percent and the 0.9 percent Medicare taxes slated to begin in 2013 as part of the Patient Protection and Affordable Care Act.


[CLICK HERE to read the actual Act, “HR 3590: The Patient Protection and Affordable Care Act,” at Congressional Health Care Caucus, January 5, 2010.]


The 0.9 percent surtax will be applied to wages and self-employment income that exceed $200,000 (for single filers) or $250,000 (for couples filing jointly). However, the tax will apply only when wages surpass the $200,000 threshold each year, continuing at the higher level for the remainder of the year.


The new 3.8 percent Medicare surtax will be applied to 2013 investment income received by high-income taxpayers. It will be levied on the lesser of either your net investment income or the amount by which modified adjusted gross income (MAGI) exceeds the same thresholds.


The tax will be levied on interest and dividends; distributions from annuities (other than tax-deferred distributions); rent and royalties; gains from investments in passive activities; trades of financial instruments and commodities; and the net capital gain from the sale of real property.


Note that “net investment income” for purposes of this tax does not include distributions from IRAs and qualified retirement plans, income from tax-exempt municipal bonds, or tax-deferred income from nonqualified annuities.


[CLICK HERE to read, “Affordable Care Act Tax Provisions,” at, December 11, 2012.]


[CLICK HERE to read answers to frequently asked questions, “New 3.8% Medicare Tax on ‘Unearned’ Net Investment Income,” at Congressional Health Care Caucus, December 13, 2012.]


One of the most notable items among the IRS’ new guidelines is that the tax code provisions that normally exempt income for regular tax purposes will also apply to the Medicare taxes. For example, the tax-deferred gains from a Section 1031 real estate exchange or Section 1035 annuity exchange will not to be assessed for the Medicare tax.


It’s also good to know that capital gains on the first $250,000 / $500,000 (individuals/married couples) resulting from the sale of a personal residence also will be excluded from the Medicare tax.


[CLICK HERE to read, “The 3.8% Tax Real Estate Scenarios & Examples Effective January 1, 2013,” at, 2012.]


With new taxes on tap for 2013, now may be a good time to reassess and perhaps even reposition assets to avoid surplus taxes. Give us a call for a complete evaluation.


[CLICK HERE to read, “CRTs, PIFS, CLTs & CGAs – Proposed Regulations on 3.8 Percent Medicare Tax,” at, December 27, 2012.]


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