The Affordable Care Act (ACA) has been quite controversial. One of the issues that the U.S. Supreme Court looked at is whether the ACA was a tax when deciding whether the ACA was constitutional. For some taxpayers, the ACA was truly a tax.
The National Society of Accountants reported to its members that some Americans paid an average of $6,091 in new taxes to fund the ACA. Who paid these additional taxes? These taxes were paid by taxpayers who were subject to the net investment income and the additional Medicare tax, both new taxes enacted in 2013.
The 3.8 percent net investment income tax on passive income and the extra 0.9 percent additional Medicare tax, part of the system of fees and taxes to pay for the ACA, generated more than $18.3 billion in their first year, according to statistics released May 27 by the IRS based on preliminary data from 2013 individual tax returns. This falls short of the $20.5 billion the Joint Committee on Taxation estimated in 2010. Dividing the total revenue generated—$11.7 billion for net investment income tax and $6.6 billion for the additional Medicare—by the number of returns reporting the tax, taxpayers were subject to the following average liabilities:
- net investment income tax: $3,786; and
- additional Medicare tax: $2,305.
A relatively small group of taxpayers, about 2 percent, are subject to one or both of these taxes. About 3.1 million returns paid the net investment income tax and about 2.8 million reported the additional Medicare tax. Depending on filing status, the taxes kicked in at about $200,000 in annual earnings—modified adjusted gross income for net investment income, and earned income for the additional Medicare tax. Those thresholds aren’t adjusted for inflation which means more Americans will likely become subject to these additional taxes in future years. Thus if you found that you were subject to these new taxes, you can consider yourself a “wealthy individual” as that was the group that was targeted. A two-wage earning family can easily find themselves subject to these taxes.
If you want to discuss your tax preparation and tax planning concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.