Did you know?
Lost in the dust up over the fiscal cliff negotiations, and the arguments over whether or not to increase taxes on higher income earners, is the fact that taxes are already going to go up on taxpayers earning more than $200,000 ($250,000 for joint filers) on Jan. 1, 2013.
These tax increases were passed as part of the Patient Protection and Affordable Care Act (PPACA) and are separate from the current discussions on the extension of the 2001-2003 tax rates on marginal income, capital gains and dividends.
This combination of tax increases as a result of the PPACA could hit many small and family businesses, like numerous Big “I” agencies and their clients, particularly hard.
There are two PPACA tax increases due to take effect next year on individuals, families and small businesses earning more than the $200,000/$250,000 income thresholds: a 0.9% Medicare tax increase on salaries and wages taking the rate from 1.45% to 2.35%, and the other is a 3.8% tax increase on net investment income.
The Internal Revenue Service released draft regulations last Friday on the 3.8% tax increase. These are technically draft regulations, but the IRS makes it clear they should be used as a guideline for 2013.
It is also important to note that, contrary to rumors, the 3.8% tax increase is not specifically a “real estate tax.” In fact, there is already language in current law separate from the PPACA that allows for an exclusion of up to $250,000 ($500,000 for joint filers) from capital gains on the sale of a principal residence. Despite this exclusion, the punitive nature of this new tax cannot be underscored enough.
The end result of these two tax increases going into effect, combined with the possibility of further tax hikes as part of the “fiscal cliff” negotiations, means tax rates could be significantly higher next year than they have been in more than a decade.
Reprinted with permission from: IA Magazine