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Two New Taxes in Health Care Law Become Effective Jan. 1, 2013

The Internal Revenue Service (IRS) and the Treasury Department issued proposals that will implement two taxes in the health care law on Jan. 1, 2013: the onerous 3.8 percent Net Investment Income Tax and the 0.9 percent Additional Medicare Tax. These taxes will heavily impact many merit shop contractors.

The Net Investment Income Tax will levy a new 3.8 percent surtax on the investment income of individuals with a modified adjusted gross income of $250,000 for married taxpayers filing jointly; $125,000 for married taxpayers filing separately; $200,000 for single filers; $200,000 for heads of household; and $250,000 for qualifying widow or widowers with a dependent child. These amounts are not indexed for inflation, meaning they will impact an increasingly wide proportion of taxpayers year after year. Individuals who are exempt from Medicare taxes still may be subject to this tax.

The IRS released a set of frequently asked questions related to this tax that is available on its website

The 0.9 percent Additional Medicare Tax will apply to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds $250,000 for married taxpayers who file jointly; $125,000 for married taxpayers who file separately; and $200,000 for all other taxpayers. This surtax is in addition to the current 2.9 percent Medicare payroll tax on wage income, and will be paid entirely by the individual.  Employers will be responsible for withholding this tax from wages or compensation paid to an employee in excess of $200,000 in a calendar year.  

The IRS also released a set of frequently asked questions for this tax.

In addition, ABC is holding a free webinar for members on Dec. 11 at 2 p.m. (ET) titled, “The Tax Cliff: What Every Contractor Needs to Know.” This webinar will address not only the taxes contained in the health care law and other tax increases that are scheduled to take effect at the beginning of 2013. Register now.


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