Two significant tax increases impacting the multifamily industry, which were enacted in 2010 as part of health care reform legislation, are slated to take effect beginning in 2013.
The first imposes an additional 0.9 percent Medicare payroll tax on wages for individuals earning over $200,000 and married couples earning over $250,000. Affected individuals and the self-employed (as opposed to employers) would be responsible for remitting the tax. Under the law applicable through 2012, a 2.9 percent Medicare payroll tax is imposed on all wage income. This means that the employer and employee are each responsible for remitting half the tax; the self-employed will be required to pay the full amount.
Second, whereas no Medicare payroll tax is today applicable to net investment income, including annuities, capital gains, interest, dividends, royalties and rents, the health care reform legislation will generally impose a 3.8 percent tax on such income for individuals with total incomes over $200,000 and married couples with total incomes over $250,000. Notably, the provision does not apply to net investment income derived in the ordinary course of a trade or business; however, it would apply, if the income inures from a passive investment activity. Finally, in the case of the disposition of a partnership interest or stock in an S corporation, only net gain or loss attributable to property held by the entity that is not property attributable to an active trade or business is taken into account.
NMHC/NAA have prepared a summary of these and other tax increases related to health care reform that may be accessed by clicking Healthcare Reform’s Tax Effects on the Apartment Industry.