Earning more? Upper-income taxpayers get an unwelcome bump
Some well-to-do taxpayers won't be thrilled when they're hit with extra tax increases — which can add hundreds or thousands of dollars to the bill.
We're talking about higher tax rates for upper-income taxpayers, as well as a higher capital gains tax rate and a new investment surtax that was included in the Affordable Care Act.
“Between the increased tax brackets that went into effect in 2013, and the new 3.8 percent Medicare surtax on net investment income, many upper-income taxpayers are seeing a significant bump in their taxes,” said Patricia Bojanic, certified public accountant and tax partner at Gordon Advisors in Troy, Mich.
“It's made tax and investment planning that much more important,” Bojanic said.
Some higher-income households, she said, could end up paying a 24 percent increase or more in the taxes on their investment income.
Now, some taxpayers could be subject to an extra tax on net investment income. Investment income includes interest, dividends, royalties, rents, capital gains and passive activity income.
More people could be talking about the 3.8 percent surtax this season because of the relatively lower income threshold, said Bernie Kent, chairman of Schechter Investment Advisors in Birmingham, Mich.
“This is the one new tax that applies to the most people,” said Kent, who has worked more than 40 years with high-net worth individuals and families.
The 3.8 percent surtax would apply to married couples when modified adjusted gross income exceeds $250,000 if filing jointly, and singles when modified adjusted gross income exceeds $200,000. The surtax would apply to married couples filing separately who individually earn more than $125,000.
On top of that, an added Medicare tax of 0.9 percent on gross income from wages and self-employment would be imposed on taxpayers earning more than $200,000 single or $250,000 for joint filers, too.
Alan Semonian, certified public accountant at Ameritax Plus in Berkley, Mich., said some higher-income households this season are getting hit by the 3.8 percent surtax after receiving significant capital gains distributions from mutual funds.
Mutual funds that aren't in tax-sheltered accounts, such as IRAs or 401(k)s, are required to pass profits from capital gains, interest or dividends to individual investors. You'd owe tax on that distribution, even if you did not sell off your shares in the fund.
For those with even higher incomes, more tax hits are taking place this year.
The highest tax rate jumps back to 39.6 percent for taxable income more than $400,000 for singles and more than $450,000 for married couples. That's up from 35 percent.
Investors in the top bracket must pay 20 percent on long-term capital gains and dividends, instead of the 15 percent most others pay.
Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at email@example.com
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Gasoline prices down nearly a dime in Pittsburgh area
- Shale gas violations down as DEP steps up inspections
- Alpha Natural Resources executive resigns amid restructuring
- Allstate patents driver analysis
- ‘Rank and yank’ doesn’t meet all expectations
- Macy’s prepares outlet stores
- Trib Total Media puts 9 Western Pa. newspapers up for sale
- Regulators expect lawsuit over oil, gas rules process
- Hackers have wide reach
- Fund fees within investor control
- Bonuses on the rise, but fewer workers receive them, survey shows