As part of the fiscal cliff, the top tax rate on dividends is scheduled to nearly triple in 2013. Here are some questions you might have:
What is a dividend? A dividend is a cash payment that a company makes to shareholders.
What type of people receive dividends? Almost everyone benefits from dividends. If you are covered by a traditional pension or 401(k) plan at work, you almost certainly own dividend-paying stocks and mutual funds that own dividend-paying stocks. Ditto for your IRA or Roth IRA. Additionally, the IRS data cited above shows that over 25 million American families choose to receive dividends directly.
Traditional pensions, 401(k)s, and IRAs are accounts for middle class Americans, not rich people. That’s where many dividends end up. Additionally, nearly 23 million out of the 25 million American families that get paid dividends directly earn less than $200,000 per year. Over 40 percent of all taxable dividends are earned in these households.
Not just evil “rich” “angry white guys” or “evil” Corporate America. 🙂
Obamacare contains twenty new or higher taxes. Five of the taxes hit for the first time on January 1. In total, for the years 2013-2022, Americans face a net $1 trillion tax hike for the years 2013-2022, according to the Congressional Budget Office.
The five major Obamacare taxes taking effect on January are as follows:
The Obamacare Medical Device Tax: Medical device manufacturers employ 409,000 people in 12,000 plants across the country. Obamacare imposes a new 2.3 percent excise tax on gross sales – even if the company does not earn a profit in a given year. In addition to killing small business jobs and impacting research and development budgets, this will increase the cost of your health care – making everything from pacemakers to artificial hips more expensive.
The Obamacare Flex Account Tax: The 30-35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs will face a new government cap of $2500. This will squeeze $13 billion of tax money from Americans over the ten years. (Currently, the accounts are unlimited under federal law, though employers are allowed to set a cap.)
There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are several million families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax provision will limit the options available to these families.
The Obamacare Surtax on Investment Income: This is a new, 3.8 percentage point surtax on investment income earned in households making at least $250,000 ($200,000 single). This would result in the following top tax rates on investment income:
15% 15% 35%2013+ (current law)
23.8% 43.4% 43.4%
The table above also incorporates the scheduled hike in the capital gains rate from 15 to 20 percent, and the scheduled hike in dividends rate from 15 to 39.6 percent.
The Obamacare “Haircut” for Medical Itemized Deductions: Currently, those Americans facing high medical expenses are allowed a deduction to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). This tax increase imposes a threshold of 10 percent of AGI. By limiting this deduction, Obamacare widens the net of taxable income for the sickest Americans. This tax provision will most harm near retirees and those with modest incomes but high medical bills.
The Obamacare Medicare Payroll Tax Hike: The Medicare payroll tax is currently 2.9 percent on all wages and self-employment profits. Under this tax hike, wages and profits exceeding $200,000 ($250,000 in the case of married couples) will face a 3.8 percent rate instead. This is a direct marginal income tax hike on small business owners, who are liable for self-employment tax in most cases. The table below compares current law vs. the Obamacare Medicare Payroll Tax Hike:
First $200,000 All Remaining Wages
($250,000 Married) Employer/Employee
2.9% self-employed 2.9% self-employed
Obamacare Tax Hike
2.9% self-employed 3.8% self-employed
2012 CBO Report on Revenue Effects of Obamacare
Tax Penalty Payments by Uninsured Individuals $55 billion
Tax Penalty Payments by Employers $106 billion
Excise Tax on High-Premium Insurance Plans $111 billion
Associated Effects of Coverage Provisions
on Tax Revenues $216 billion
Reinsurance and Risk Adjustment Collections $184 billion
Fees on Manufacturers and Insurers $165 billion
Additional Hospital Insurance Tax $318 billion
Other Revenue Provisions $87 billion
Courtesy of ATR
This won’t hurt everyone, the economy and job “growth” now will it!
But don’t worry,it’s still Bush’s Fault!! That will keep you warm by the fire, until they ban it (bad for the environment, you know) or tax it that is…
Happy New Year. Happy New Tax Increases EVERYONE…. 🙂