Medicare Surtax Is Coming on January 1, 2013
Beginning January 1, 2013, there is a new Medicare Surtax on wages and self-employment income in excess of $200,000/$250,000 (married couples). This surtax is comprised of a .9% rate which added to the current total Medicare tax rate of 2.9% equals a new combined rate of 3.8%
Additionally, if you have certain types of investment or passive income, this income may be subject to a new Medicare Surtax of 3.8%. To compute the Surtax, you need to know two numbers. First, how much of your total adjusted gross income is in excess of $200,000 (single) or $250,000 (married couples). Second, what is your total income from interest, dividends, capital gains, rents, passive income, etc. The Medicare Surtax will apply to the lessor of these two numbers.
There are planning opportunities available to reduce this Surtax, but you must plan this with your tax advisor now. Do not wait until it is too late.
Paul Neiffer
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
What about farmers who file a 4835 as actively participating. Will they be subject to this tax? They are active in the trade or business, but however since its a 4835 it flows to Sch. E as passive. Subject to the medicare tax?