As part of the Health Care and Education Reconciliation Act of 2010, high income taxpayers are subject to a new 3.8% Medicare tax on investment income starting in 2013.
Golden Years, Money Tree’s advanced cash flow planning software, includes detailed tax calculations each year.
If you are running Golden Years projections and notice Medicare included in the projection after a client is retired and has no “earned” income, keep in mind this part of the 2010 act kicks in next year.
Golden Years will determine if your client falls into the high income category if the client’s AGI exceeds $200,000 for a single taxpayer, or $250,000 for married filing jointly.
The new rule doesn’t necessarily mean your client will pay 3.8% taxes on all investment income.
The 3.8% Medicare tax will apply to the lesser of your clients total investment income or the amount that the clients AGI exceeds the high income threshold.
If you would like a refresher on the medicare tax increases (including the 3.8% discussed here) that were part of the Health Care and Education Reconciliation Act signed into law in March of 2010, take a minute to review this article from CNN news: