Image courtesy of user "777546" on Pixabay.com

Image courtesy of user “777546” on Pixabay.com

ACA surtaxes can refer to one of two new taxes created by the Affordable Care Act.

  1. A 0.9% surtax on wages above $200,000 for a single person, and $250,000 for a married person
  2. A 3,8% surtax on investment income for people whose income is above $200,000 if single and $250,000 if married

Mechanics of 0.9% Surtax

For people who are employees, the surtax will be taken on any wages paid above $200,000, regardless of the employee’s marital status. The employee will need to fill out a form (Form 8959) to reconcile the amount of surtax paid vs. the amount the employee is actually liable for.

Example

Joe makes $210,000 at his job. His wife is a homemaker and has no income. Joe’s employer correctly started withholding an extra 0.9% once his wages reached $200,000. The extra withholding amounted to $90 (0.9% x $10,000).

Since Joe is married, the surtax doesn’t actually kick in until he and his wife’s total earned income reaches $250,000. Joe will fill out Form 8959 to get a refund of the $90.

Mechanics of the 3.8% Surtax

The surtax is levied on the lesser of: total investment income, or amount of total income in excess of $200,000 if single or $250,000 if married.

Investment income includes things such as:

  • Interest
  • Dividends
  • Capital gains
  • Income from passive activities

Investment income does not include retirement income, pensions, Social Security, etc.

The 3.8% tax is levied on the smaller of total investment income or total income in excess of the $200,000/$250,000 thresholds.

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”