Disappointed
Recycles dryer sheets
- Joined
- Sep 16, 2007
- Messages
- 464
For the first time, the combined employer-worker 2.9% Medicare rate would be extended beyond wages to interest, dividends, capital gains, annuities, royalties and rents for individuals with adjusted gross income above $200,000 and joint filers over $250,000.
That would lift the top capital-gains rate to 22.9% as the regular rate bounces back to 20% from 15% when the Bush tax cuts expire at the end of this year. The top rate for dividends would rise to 42.5% when the Bush income-tax rates expire. The White House plan also raises the ordinary Medicare payroll tax by 0.9 percentage points for the same filers, bringing it to 3.8%.
Audrey, I suspect keeping annual income below $250K ($200 for singles) won't be a big problem for most folks reading the form. I know it won't for me...Also, 2011 on, I think it's going to be easy for us to manage our annual income to keep it below $250K. I have already realized some large cap gains this year in anticipation of the expiring Bush Tax Cuts.
Not clear whether the new tax would start in 2011 or later.
Audrey
Also, interestingly, this new tax will create a situation where interests and dividends could be taxed at a higher rate than earned income.
From the article:
Earning even a single dollar more than $200,000 in adjusted gross income will slap the 2.9 percent tax on every dollar of a taxpayer's investment income, creating a huge marginal rate spike that will most hurt middle-class earners, as opposed to the super rich, says the Journal.
Looks like the sale of a home in a high-priced area could trigger this tax.
Or a home that has many years of appreciation in it, like mine. I'm single and have been planning to sell my house and retain part of the proceeds to fund retirement. Looks like this could put a big crimp in that plan.
Remember that the first $500K gain on a primary residence is excluded from taxes for married couples. Then the gain wouldn't be hit with this medicare tax until of another $250K . . .so unless you're getting more than $750K gain on your place, it's pretty much tax free. And even if you realized a $1MM gain, the tax on that would be about $9,500 . . . not enough to put a "big crimp" in anyone's plan, I'm guessing.
If this $250K isn't indexed for inflation, in a couple of decades it's going to be the AMT debacle all over again.Remember that the first $500K gain on a primary residence is excluded from taxes for married couples. Then the gain wouldn't be hit with this medicare tax until of another $250K . . .
You'll have to show me the math on this. The new top rate on capital gains and dividends will be 23.8% . . . nearly half of what the top rate for earned income is expected to be.
Interest income, which is taxed at the normal rate, could be taxed slightly higher, in theory. But in practice, anyone in the top brackets is going to be putting most of their money in tax exempt bonds.
And even if you realized a $1MM gain, the tax on that would be about $9,500 . . .
We had a thread on this already.
Investment income is already massively tax advantaged, even after the coming proposed changes. This increase won't have all of the dire consequences forecast.
Meanwhile deficit scolds should be happy that for the first time in at least a decade the government is proposing to actually pay for its policies (including the tax cuts that lowered rates to their current level).
Hey - thanks for the detail!According to business week it starts in 2013 . . . so hurry up and harvest those gains!
For a single person after the 250K exclusion, my math says the additional tax would be 21.75K ( 2.9% of 750K), and that's on top of 150K from the 20% capital gains tax, and this is assuming you had no other unearned income that would be subject to this tax. For marrieds it would be 14.5K due to the bigger exclusion. As I'm sure you know (I believe you have told us you live in northern NJ), a fairly modest home in the NYC suburbs (e.g. Westchester County) could easily have this kind of gain if the home had been purchased 20-30 years ago.
Not challenging your politics here - just trying to get the math straight .
Investment income includes small businesses that creat 80% of all new jobs created...