How the 2013 Medicare Tax Affects TaxpayersJanuary 30th, 2013 | Posted by in Medicare Costs | Medicare News
Congress resolved and passed the American Taxpayer Relief Act of 2012 in the last minutes of 2012, avoiding hitting the January 1st deadline by a slim margin. This act increased taxes for those with incomes above a certain limit and also established higher payroll taxes for workers.
As discussed in an earlier post, this bill passed to avert the “fiscal cliff” affects the future of the Medicare program while also preventing additional tax hikes and spending cuts that would have adversely affected the entire nation.
This post will explain how Americans are affected by the 2013 Medicare tax and how organizations plan to tackle the issue in the future.
A worker whose taxable income falls below a certain limit will not see an increase in his ordinary income tax, but will still remain in his tax bracket paying between 10 percent and 35 percent in taxes. Those single filers with a taxable income above the threshold of $400,000 a year as well as married filers with income over $450,000, married separate filers with incomes over $225,000, and heads of household with incomes over $425,000 will pay the new 39.6 percent income tax rate. This rate increased from the previous 35 percent tax rate.
The Additional Medicare Tax is a payroll tax applied to an individual’s wages, compensation, or self-employment revenue over a certain threshold amount. This tax is taken directly from one’s paycheck and the tax itself is an additional 0.9 percent.
The Affordable Care Act of 2010 stipulated a Medicare surtax to curb the costs of the health care legislation. This surtax is a 3.8 percent additional tax on income from dividends, interest, royalties, capital gains, and more. This surtax applies to single filers who have an adjusted gross income that exceeds $200,000 and married filers with incomes exceeding $250,000.
The NEWT Act
The Narrowing Exceptions for Withholding Taxes (NEWT) Act was recently re-introduced by House Democrats to prevent some workers from avoiding Medicare taxes. This bill got its name when former House Speaker Gingrich earned $3 million but declared $2.4 million of this amount a “profit,” and therefore saved over $69,000 in Medicare taxes. According to Rep. Charles Rangel, this bill will close a loophole in the tax code by targeting self-employed people who have organized their businesses so that their earnings are referred to as profits and are not subject to any Medicare taxes. The Joint Committee on Taxation estimated that closing this loophole would raise $11.2 billion in revenue over the next decade.
The Business Roundtable
A popular idea presented by the Business Roundtable, a representative group of chief executives of major U.S. companies, proposed to stop excessive Social Security and Medicare spending by raising the eligibility age without increasing income taxes. This group wants to raise the retirement age to 70 from 67 and scale back benefits for wealthier recipients. Under this plan, Medicare would become a system of private plans that would compete with the government-sponsored program. This is similar to the Republican budget plan that was rejected by the Democrat-run Senate.
What do you think of the new Medicare taxes and the proposals to curb Medicare spending?
Medicare has not reviewed or approved this information.