Health care reform may affect taxes

Q&A with Keith Peters

published in The Oklahoman | April 18, 2010

McAfee & Taft tax attorney Keith Peters was featured in The Oklahoman discussing how health care reform will affect taxes. The recent health care legislation contains several tax increases, including higher payroll taxes and new taxes on investment income.

Peters shared that beginning in 2013, the new law on payroll taxes increases the employee’s share of the Medicare tax by 0.9 percent to a total of 2.35 percent of earned income above $200,000 or above $250,000 for married couples.

Peters said there are new taxes that apply to several types of investment income, including interest, dividends, annuities, rents, royalties and many capital gains.

“Fortunately for retirees, the tax does not apply to Social Security, pension payments, or distributions from many of the most common types of retirement accounts, including 401(k)s, 403(b)s and IRAs,” he said.

Peters went on to say that the tax on investment income equals 3.8 percent in addition to taxes already paid on these types of income. For 2011, the capital gains rate is already scheduled to rise from 15 percent to 20 percent, and the top ordinary income rate will increase from 35 percent to 39.6 percent.

Starting in 2013, the investment income tax will apply to those with “modified adjusted gross income” above $200,000 or above $250,000 for married couples.  Some trusts will also have to pay the tax.

When discussing how individuals with incomes above these levels can lower the investment tax, Peters told The Oklahoman, “Some simple strategies for limiting the application of the new tax are to consider investing in tax-exempt municipal bonds and maximizing savings in tax-favored retirement accounts.”

There are also several more complex planning opportunities that may be appropriate for some. People expecting to owe the tax should begin planning now by asking a qualified accountant or tax attorney for advice specific to their circumstances.