We went through a time when all those new Obamacare Taxes were a bit overwhelming. If you had a “Cadillac plan” you paid extra “taxes.” If you sold Medical Devices, there was a “tax.” If you didn’t get qualified Health Insurance, you had to pay a tax. Etc. Etc.
Well, many of those pesky Obamacare taxes have since been repealed, but not all! If you are an employer with at least 50 employees, you still have to pay a “tax” if you do not offer qualified health insurance and any of your employees purchase health insurance through the Obamacare exchanges. (Almost every state has one.)
If you have earned income, a single individual with earnings (W-2, small business, etc.) of $200,000, marrieds with $250,000, you must pay a tax of 0.9% of all earnings over those thresholds. Any amounts not withheld by the employer on a W-2 will have to be computed and paid when the tax return is filed.
Then of course, there is still the Net Investment Income Tax (NII). This is a surtax that applies to net investment income of single filers over $250,000 and joint filers over $250,000. (You gotta love how the Congress likes to pick on married folks.) Marrieds filing separately have a $125,000 threshold. Modified Adjusted Gross Income (MAGI) is the regular AGI from your tax return PLUS tax-free foreign earned income. The tax is due on the smaller of NII or the excess of MAGI over the set income thresholds.
Included in Investment Income is dividends, taxable interest, capital gains, passive rents, annuities, and royalties. Retirement pay is not considered Investment Income. Nor is tax-free interest from municipal bonds. Investment expenses can reduce the Investment Income subject to the NII.
The NII tax is 3.8% of the amounts of NII that exceed the income thresholds listed above.
There is a way to have your rental income NOT counted as NII. Qualify as a “Real Estate Pro.” To do that, you must spend over 50% of your working hours and 750 or more hours a year materially participating in real estate as a developer, broker, etc. The IRS created a “safe harbor” process that says a real estate pro who participates over 500 hours a year in rental activities will meet this test.
Thank your lucky stars the “Build Back Better” bill didn’t pass. It would have added income from all pass-through entities to the list subject to this “tax.” (Business related Sub-S, Partnership, etc.) It would have also raised the limits on taxable incomes to $400,000 for singles and $500,000 for marrieds. (What is it with Congress and their hatred of married folks?)
Have you heard? Prov 22:27 says, “If you have nothing with which to pay, why should your bed be taken from under you?”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.