The first step of a two-step process for health care reform passed Sunday night. With the primary bill now signed into law, the Senate this week will begin work on a package of changes (H.R. 4872) to the measure that the House also passed on Sunday.
Of interest to apartment firms are three tax increases used to pay for the measure. They include:
- New 3.8% Medicare tax on unearned income. Beginning in 2013, the bill would apply a 3.8% Medicare tax to all unearned income not derived from a trade or business. It will apply to the lesser of net investment income or the excess of modified adjusted gross income over $250,000 for joint return taxpayers ($200,000 for most other taxpayers, including estates and trusts).
The tax will apply to net income (i.e., income after applicable deductions) derived from interest, dividends, annuities, royalties, rent and capital gains attributable to the disposition of property.
Generally the tax does not apply to net incomes derived from these sources, including from the disposition of a partnership interest or stock in an S corporation, if the income is derived from a “trade or business,” unless that trade or business is a passive activity.
- Increased payroll and self-employment taxes. Beginning in 2013, the FICA-HI (Hospital Insurance) tax increases by 0.9% for wages in excess of $250,000 (married filing jointly) or $200,000 (in most other cases). Unlike current-law FICA taxes, this tax is imposed on the combined income of a married couple. Hence, two adults, both earning $190,000 annually, would not be subject to the increased tax if both were single, but would pay an additional $1,170 (0.9% x $130,000 (the amount in excess of $250,000)) if married. The tax applies to both wages and self-employment income.
- Increased reporting requirements for businesses. Effective in 2012, the bill imposes additional reporting requirements on businesses. Current law requires a trade or business to file information returns with the IRS whenever payments aggregating $600 or more are made to a non-corporate taxpayer. This bill would expand those reporting requirements to include payments made to corporations and to include gross proceeds paid in consideration for property or services. Failure to comply with the information reporting rules may result in the imposition of various penalties including penalties for failure to file.
A summary of the legislation prepared by the Joint Committee on Taxation is available at http://bit.ly/d0yT03.