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Tis new tax was never introduced, discussed or reviewed until just hours before the final debate on the
massive health care legislation began. Tat legislation was enacted on March 23, 2010, more than a year
after the health care debate began. Tis new tax was put forward after Congress was unable to agree on
changes to current law that were sufficient to pay for the proposed changes to the Medicare program and
increased subsidies to individuals and businesses.
Te new tax raises more than $210 billion (over 10 years), representing more than half of the total new
expenditures in the health care reform package. NAR expressed its strongest possible objections, but the
legislation passed on a largely party line vote.
Te new tax is sometimes called a “Medicare tax” because the proceeds from it are to be dedicated to the
Medicare Trust Fund. Tat Fund will run dry in only a few more years, so this tax is a means of extending
its life.
A second new tax, also dedicated to Medicare funding, is imposed on the so-called “earned” income of
higher income individuals. Tis earned income tax has a much lower rate of 0.9% (0.009). Like the tax
described in this brochure, this additional or alternative tax is based on adjusted gross income thresholds
of $200,000 for an individual and $250,000 on a joint return. Like the 3.8% tax, this 0.9% tax is imposed
only on the excess of earned income above the threshold amounts. An example and some analysis of this
tax is presented in Example 5 of this brochure.
Another way of thinking about these new taxes is to think of the 3.8% tax as being imposed on a portion
of the money that you make on your money — your capital (sometimes referred to as “unearned income”).
Te 0.9% tax is imposed on a portion of the money you make on your labor — your salary, wages,
commission and similar income related to earning a livelihood.
Additional Info
Online FAQs
Tese FAQs can answer most of the questions not covered in these examples.
No separate brochure has been prepared on the 0.9% tax, as it has none of
the complexity associated with the 3.8% tax.