[Affordable Care Act] ACA Surcharge: Effect on AMT?

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[Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Biil McNeal » Fri Nov 23, 2012 5:29 pm

I posted this previously but there wasn't a clear answer in the past. As part of the 2009 health care reform bill, those with incomes over 250k will have to pay an extra 0.9% on wages and 3.8% on unearned income.

For people subject to AMT, will this just mean their AMT is reduced by the same amount (basically neutralizing the tax increase) or will their AMT be unchanged (resulting in an increase in overall tax)?
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Bob's not my name » Fri Nov 23, 2012 6:12 pm

http://thefinancebuff.com/obamacare-3-8 ... x-amt.html

By the way, your statement isn't correct. The 0.9% tax is on taxable wages over $250,000, not total income. For example, a couple with $260,000 wages and $20,000 investment income will probably not pay any of the 0.9% tax, since their pre-tax insurance premiums and FSA contributions can get their wages under $250,000, or very close to it.

As for the 3.8% tax, it is not on unearned income, it's on certain categories of investment income. Muni bond interest is excluded. Furthermore, the threshold here is not total income or wages, it is AGI. The example couple above would probably not pay any of the 3.8% tax, either, because 401k contributions, FSA contributions, and pre-tax health insurance premiums could easily drop their AGI to under $250,000.

One ACA tax that is "absorbed" by the AMT is the increased threshold for itemized medical deductions. Since taxpayers in the AMT are already subject to the higher threshold (10% of AGI), this new tax affects only taxpayers who are below the AMT.
Last edited by Bob's not my name on Fri Nov 23, 2012 6:19 pm, edited 1 time in total.
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Calm Man » Fri Nov 23, 2012 6:12 pm

The "rules" haven't come out yet to my knowledge. I would assume that the ACA surcharge on both investment income and earnings will be AFTER regular and AMT taxes. This is exactly how self empllyment taxes are handled now. SO your tax and AMT adjustment if any would be calculated and then the ACA tax added. The ACA tax is not really an income tax just like self employment tax is not an income tax. I think it is included with your tax returns for simplicity and to avoid multiple filings by people. If anybody thinks this thought process is incorrect, please chime in.
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Calm Man » Fri Nov 23, 2012 6:15 pm

Bob's not my name wrote:http://thefinancebuff.com/obamacare-3-8-medicare-tax-and-alternative-minimum-tax-amt.html

By the way, your statement isn't correct. The 0.9% tax is on taxable wages over $250,000, not total income. For example, a couple with $260,000 wages and $20,000 investment income will probably not pay any of the 0.9% tax, since their pre-tax insurance premiums and FSA contributions can get their wages under $250,000, or very close to it.

As for the 3.8% tax, it is not on unearned income, it's on certain categories of investment income. Muni bond interest is excluded. Furthermore, the threshold here is not total income or wages, it is AGI. The example couple above would probably not pay any of the 3.8% tax, either, because 401k contributions, FSA contributions, and pre-tax health insurance premiums could easily drop their AGI to under $250,000.


Not Bob, the way I have thought about the 0.9% earned income ACA tax is that it is on what is reported on the W2 (or schedule c) or both combined as wages (in box 1 of the W2). That accounts for the 401K and HSA type of items. Right? Or maybe the 401K will actually be included as it is for FICA so it would be box 1 plus 401,as I think you are saying--what do you think?
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Biil McNeal » Sun May 12, 2013 1:27 am

Have rules been released that clarify if the 3.8% surcharge is absorbed by people paying AMT (so they pay less AMT) or do both regular and AMT increase?
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby tfb » Sun May 12, 2013 1:46 am

Biil McNeal wrote:Have rules been released that clarify if the 3.8% surcharge is absorbed by people paying AMT (so they pay less AMT) or do both regular and AMT increase?

Yes, not absorbed.
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Biil McNeal » Mon Aug 19, 2013 5:54 pm

Thanks tfb. So the 3.8% unearned income surtax will hit everyone above $250,000, regardless of AMT status.
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby frugaltype » Mon Aug 19, 2013 6:24 pm

Biil McNeal wrote:Thanks tfb. So the 3.8% unearned income surtax will hit everyone above $250,000, regardless of AMT status.


this statement seems to be in conflict with some of the statements above, unless i am missing something.
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Biil McNeal » Tue Aug 20, 2013 1:54 pm

I got the impression that the 3.8% surcharge was applied as FICA, so it affects you the same if you are in AMT or not. At least, that's what "not absorbed" by AMT sounds like to me.
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Biil McNeal » Wed Aug 21, 2013 6:13 pm

Top of page 4 of this US Trust document says: "THE SURTAX IS IN ADDITION TO THE
ALTERNATIVE MINIMUM TAX."

http://www.ustrust.com/Publish/Content/ ... Surtax.pdf
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Re: [Affordable Care Act] ACA Surcharge: Effect on AMT?

Postby Calm Man » Wed Aug 21, 2013 9:19 pm

Biil McNeal wrote:Top of page 4 of this US Trust document says: "THE SURTAX IS IN ADDITION TO THE
ALTERNATIVE MINIMUM TAX."

http://www.ustrust.com/Publish/Content/ ... Surtax.pdf

Bill, indeed that is correct. I already somehow "knew" this. Alternate minimum tax would affect the regular tax liability. The Obamacare tax has nothing to do with that and is an added bonus.
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