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In response to a U.S. House of Representatives subcommittee hearing on the tax provisions contained in the Patient Protection and Affordable Care Act (PPACA), ABC sent a letter that called attention to several provisions that will affect ABC members, including the additional Medicare taxes on wages and investment. 

As of January 2013, high earners and small businesses became exposed to surtaxes on various types of income. Wages above $200,000 (or $250,000 if filing jointly) are subject to a 0.9 percent additional Medicare tax, while a 3.8 percent net investment income tax (NIIT) will be levied on the lesser of adjusted gross income above $200,000 ($250,000 jointly) and “unearned” income.  Combined with the 39.6 percent top bracket created by the American Taxpayer Relief Act, these surtaxes yield a 25 percent gap between the rates paid by smaller businesses and those enjoyed by the country’s largest corporations.  These thresholds also have not been indexed for inflation and will gradually ensnare more taxpayers and small businesses each year.

In its letter, ABC pointed out that in addition to the sheer financial burden, the 3.8 percent NIIT and its nebulous definition of “investment income” creates further uncertainty for contractors engaged in real estate ownership and management.  

For instance, it is common for construction entities to own and operate rental properties such as commercial buildings and shopping centers.  A contractor generally is considered to be a real estate professional by virtue of his participation in construction activities; however, the contractor also must meet a separate test regarding time actually spent on rental activities in order for the rentals not to be passive. Because the rules are complex and time consuming to understand, contractors most likely will consult counsel or a CPA, which means another added business cost.

ABC also used the letter to reiterate its support for bills that would repeal other taxes in PPACA including:

  • the employer mandate, which beginning in 2014, will mandate employers with 50 or more full-time equivalent employees to offer a certain level of coverage or be subject to taxes; 
  • the health insurance premium tax, which is assessed on all health insurance companies based on their “net premiums,” and is just another new cost passed along to the customer—small business owners; and
  • the 2.3 percent medical device tax, which will be passed through to consumers in the form of higher health insurance premiums.
“Providing quality health care benefits is a top priority for ABC and its member companies,” ABC wrote. “ABC believes true reform should provide greater choice and affordability and allow private insurers to compete for business. Unfortunately, PPACA fails to lower costs and imposes new taxes, as well as costly and burdensome federal government mandates on businesses.”