New Payroll Taxes on Tap

Currently, the 1.45% Medicare tax portion of Social Security tax applies to “earned income,” such as wages, but not “unearned income.” Effective in 2013, the new health care law creates two new taxes:

  • An additional 0.9% Medicare tax is imposed on earned income of joint filers above $250,000 ($200,000 for single filers).
  • A 3.8% Medicare tax is imposed on “net investment income” of joint filers with a modified adjusted gross income (MAGI) above $250,000 ($200,000 for single filers).

For this purpose, net investment income includes interest, dividends, royalties, rents, gains from dispositions of property and passive activity income, but not distributions from qualified retirement plans and IRAs.