March 22, 2010 Examples of Taxpayers Facing Medicare Tax Increase under Health Care Bill TF Staff TF Staff Print this page Subscribe Support our work Fiscal Fact No. 219 The health care bill passed by the House of Represenatives on Sunday (Senate bill plus reconciliation) includes, among many other tax increases, two tax hikes on high-income taxpayers set to go into effect in 2013. One of the increases is a higher employee Medicare tax on wages earned above $250,000 (married; $200,000 for singles). The other tax hike is a 3.8 percent Medicare tax on investment income earned by couples earning more than $250,000 in modified adjusted gross income ($200,000 for singles). Investment income includes such sources as rental income, dividend income, interest income, income from trusts, and most capital gains. In this short Tax Foundation Fiscal Fact, we present eight examples of the tax hikes that various high-income taxpayers would face under the bill. We should point out two other important facts before delving into the hypothetical examples: (1) These are not the only tax provisions in the health care bill. (2) The thresholds cited above ($250,000 for couples and $200,000 for singles) are not indexed for inflation in the bill. Therefore, assuming no other changes were made to the provision, more and more taxpayers will be hit by this provision as we move later into the decade. (And note that it’s $200,000 in 2013, which, assuming some reasonable rate of inflation (2% per year), would be equivalent to an income of about $188,000 in 2010.) Scenario 1: Single taxpayer earning $200,100 in wages Current Medicare tax (employer portion): $2,901.45 Current Medicare tax (employee portion): $2,901.45 New Medicare tax (employer portion): $2,901.45 New Medicare tax (employee portion): $2,902.35 New Medicare Unearned Income tax:$0 Current Medicare total tax: $5,802.90 New Medicare total tax: $5,803.80 Medicare tax increase: $0.90 Scenario 2: Married taxpayer earning $250,100 in wages Current Medicare tax (employer portion): $3,626.45 Current Medicare tax (employee portion): $3,626.45 New Medicare tax (employer portion): $3,626.45 New Medicare tax (employee portion): $3,627.35 New Medicare Unearned Income tax: $0 Current Medicare total tax: $7,252.90 New Medicare total tax: $7,253.80 Medicare tax increase: $0.90 Scenario 3: Single taxpayer earning $300,000 in wages Current Medicare tax (employer portion): $4,350 Current Medicare tax (employee portion): $4,350 New Medicare tax (employer portion): $4,350 New Medicare tax (employee portion): $5,250 New Medicare Unearned Income tax: $0 Current Medicare total tax: $8,700 New Medicare total tax: $9,600 Medicare tax increase: $900 Scenario 4: Married taxpayer earning $350,000 in wages Current Medicare tax (employer portion): $5,075 Current Medicare tax (employee portion): $5,075 New Medicare tax (employer portion): $5,075 New Medicare tax (employee portion): $5,975 New Medicare Unearned Income tax: $0 Current Medicare total tax: $10,150 New Medicare total tax: $11,050 Medicare tax increase: $900 Scenario 5: Single taxpayer earning $180,000 in wages and $40,000 in investment income Current Medicare tax (employer portion): $2,610 Current Medicare tax (employee portion): $2,610 New Medicare tax (employer portion): $2,610 New Medicare tax (employee portion): $2,610 New Medicare Unearned Income tax: $760 Current Medicare total tax: $5,220 New Medicare total tax: $5,980 Medicare tax increase: $760 Scenario 6: Married taxpayer earning $180,000 in wages and $75,000 in investment income Current Medicare tax (employer portion): $2,610 Current Medicare tax (employee portion): $2,610 New Medicare tax (employer portion): $2,610 New Medicare tax (employee portion): $2,610 New Medicare Unearned Income tax: $190 Current Medicare total tax: $5,220 New Medicare total tax: $5,410 Medicare tax increase: $190 Scenario 7: Married taxpayer earning $370,000 in wages and $1.5 million in investment income Current Medicare tax (employer portion): $5,365 Current Medicare tax (employee portion): $5,365 New Medicare tax (employer portion): $5,365 New Medicare tax (employee portion): $6,445 New Medicare Unearned Income tax: $57,000 Current Medicare total tax: $10.730 New Medicare total tax: $68,810 Medicare tax increase: $58,080 Scenario 8: Married taxpayer earning $5 million in investment income Current Medicare tax (employer portion): $0 Current Medicare tax (employee portion): $0 New Medicare tax (employer portion): $0 New Medicare tax (employee portion): $0 New Medicare Unearned Income tax: $180,500 Current Medicare total tax: $0 New Medicare total tax: $180,500 Medicare tax increase: $180,500 Topics Center for Federal Tax Policy Individual and Consumption Taxes Research Tags Health Care
