Most Americans may have avoided the so-called "fiscal cliff" that would've plunged them into higher tax brackets, but at the dawn of the New Year, two health care levies took hold that could affect a lot of taxpayers.
First, a new 3.8 percent Net Investment Income Tax now applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. This tax must be paid regardless of whether or not the tax filer is paying Medicare taxes. The Internal Revenue Service (IRS) has published an online Q&A on this tax.
Second, a so-called Additional Medicare Tax also goes into effect. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status.
The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.
Both taxes are part of the Patient Protection and Affordable Care Act (PPACA) of 2010.