What you should know:
- Individuals who earn more than $200,000 ($250,000 for couples) in 2013 will pay a 0.9% increase in Medicare payroll tax.
- Those same individuals will also pay a 3.8% Medicare tax on certain kinds of investment income, such as interest, dividends, capital gains and rental income.
- It will be more difficult to deduct medical expenses this year, as the income floor these expenses have to exceed has risen from 7.5% of adjusted gross income to 10%.
- Those who opt to not purchase insurance in 2014 may be subject to a penalty equal to the greater of $95 per family member or 1% of income. Those amounts rise to $295 and 2% in 2015 and $695 and 2.5% in 2016.
- As of January 2015, larger businesses (i.e., those employing 50 people or more) that do not provide insurance may be penalized $2,000 per full-time employee beyond 30 employees.
- Starting in 2018, health insurance companies will be assessed a 40% tax for high-cost, “Cadillac” health plans. Intended to discourage unnecessary hospital visits and tests, the controversial tax will be applied on health plans that exceed certain annual limits.
- The income generated through municipal bonds is exempt from the new Medicare surtax and not considered when calculating the threshold for the 3.8% surtax.
- Not only are Roth IRA distributions not subject to the 3.8% Medicare tax, they aren’t included when calculating adjusted gross income and can’t push other investment income into the tax.
- Certain strategies, such as contributing to a retirement account, deferring compensation or directing IRA distributions to a qualified charity, may help keep you from exceeding income surtax thresholds.
What you should do now:
As the Affordable Care Act continues to roll out, investors would be well-served to consider how its tax provisions will affect their finances. A financial advisor who understands how these provisions will impact your financial goals can work with you and your tax professional to help ensure your portfolio is as well-positioned and tax-efficient as possible.
Robert W. Baird & Co. does not provide tax or legal advice. Please refer to your tax professional prior to implementing any tax strategies.