Beam me up, Scotty! After reading through the health care bill, the taxes to pay for the plan will make you feel like you are in outer space.
If you are high-wage earner or a small-to-medium size business owner who is doing well, now will be the time to begin thinking about your overall tax management plan, as your future income taxes could end up skyrocketing to the tune of 60 percent! I don’t think people fully realize yet that some tax hikes are in this bill while others are already in motion, and I believe more will come within the next year.
First, according to the IRS, the top tax rates are scheduled to revert to 36 percent and 39.6 percent, where they were a few years ago, from 33 percent and 35 percent. If you are in the highest bracket, you just took a 4.6 percent additional tax hike from a federal income tax level.
Second, this bill stipulates two increases in the Medicare tax. For single wage earners over $200,000 and married couples over $250,000, the Medicare tax will rise from 1.45 percent to 1.9 percent on your waged income, according to Bloomberg. Remember, on Medicare taxes, you generally pay half and your employer pays half so there is a hit on both sides. The bigger piece, which the government expects to raise $210 billion dollars from applying an additional 3.8 percent Medicare tax to all investment income, would include income earned from interest, dividends, capital gains, annuities, royalties, and rents.
This tax could have a huge impact on pre-retirees and retired individuals who are at a high level of income from those income sources. In addition, it makes decisions about when to take capital gains on your investments really important over the next nine months if you are a high wage earner. Even though the hikes may not start until 2013, the decisions you make now will be enormous.
Third, according to Bloomberg, the administration has proposed that capital gains tax moves outright from 15 percent to 20 percent beginning in 2011. This means that the overall capital gains rates would be a minimum of 23.8 percent on high-wage earners when these taxes would take effect.
Fourth, I don’t see how the social security tax of 6.2 percent (FICA) that is paid equally by you and your employer doesn’t get passed at some point soon and applied to your income for those who are single earning more than $200,000 and married couples earning over $250,000. This seems like a logical step considering that this is the first year where the outlays from social security exceed the intake from that specific tax.
Fifth, if nothing changes between now and the end of 2010, dividend taxation will be treated at your ordinary income tax level versus the zero percent rate if you are in the 10 percent tax bracket and 15 percent for all other tax brackets. This is a big one for those who buy heavy dividend-type investments or receive a lot of dividend income. It could cut that income down by another as much as another 24.6 percent based upon your income tax bracket.
All of this doesn’t even involve what may happen in your local state with either state income tax or sales tax, as they have to figure out how to pay for this bill as well. It should stand to reason for even the simplest of business proposals that if you spend 1 trillion dollars, you have to be able to figure out a way to pay for it. These bills are so large and have so many line items that most normal people can’t make heads or tails of it. If you make money or have money, don’t ignore this one because it will hit your wallet if you don’t put a plan in place.