On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (Pub L 111–148, 124 Stat 119). As expected, the health care reform legislation, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (Pub L 111–152, 124 Stat 1029), includes an additional Medicare tax beginning in 2013 on individuals making over $200,000 per year ($250,000 for joint filers), bringing the Medicare tax rate to 3.8 percent for those individuals. In a surprising development, for the first time in the history of the Medicare program, the new 3.8 percent Medicare tax will apply to the net investment income of those individuals. The new tax represents a further increase in the tax rate on net investment income of high earners, already scheduled to rise from 15 percent to 20 percent on long-term capital gains and qualified dividends in 2011. To prevent evasion of the tax by holding assets in trust, the new Medicare tax also will apply to the net investment income of trusts and estates in the top income tax bracket. New IRC §1411(a)(1).
For a detailed analysis of these changes, see the April issue of the Estate Planning & California Probate Reporter. For more on income taxation of trusts and estates, see California Estate Planning, chap 13 (Cal CEB 2002).
For those interested in tax changes affecting estate planning, check out the 32nd Annual UCLA/CEB Estate Planning Institute on May 14-15.
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