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New Medicare Tax for High-Earners to Begin in 2013

Last Updated: 1/1/13

While Democrats and Republicans were arguing over whether income tax rates for the wealthy would rise in 2013, one new tax for high-earners was certain to be imposed on January 1: a new Medicare tax that is part of the 2010 health reform law.

It’s actually two separate taxes, depending on the source of income.  There will be a 3.8 percent tax on investment income for individuals with adjusted gross income above $200,000, or $250,000 for married couples filing jointly.  The same high-income taxpayers will pay an additional Medicare tax of 0.9 percent on wages and self-employment income above the income thresholds.

These taxes are in addition to the 1.45 percent tax that all taxpayers already pay for Medicare.  Employers kick in a matching 1.45 percent but they won’t have to pay the new 0.9 percent wage tax.

The investment income tax will not apply to tax-exempt income such as municipal bonds or retirement plan distributions.

 For details from Reuters on the new tax will work, including case examples, click here.

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