by Ryan McKeown, CPA, CFP®, Vice President Financial Advisor, Wealth Enhancement Group

The recent health care legislation passed brings with it several new tax benefits, such as credits to subsidize the cost of health insurance for a working family up to 400% above the poverty line (currently $88,000 or less of household income for a family of four).  This legislation also increases Medicare taxes if your income is too high, or have the wrong kinds of income.  Most of these come into effect in 2013 or later, but it is important that you start thinking about how you will position your income and assets to minimize the impact of increased taxation levels.
 
The first Medicare tax increase of .9% applies to wages and self employment income over threshold amounts of $200,000 filing single, $250,000 filing jointly.  What this means to the general public is that if you receive a W-2 from your employer in excess of these amounts, you will be subject to a .9% tax to the amount above these thresholds.  If you are married and have W-2 income of $300,000, you would pay .9%, or $450, on $50,000 of income, the amount above the threshold.
 
The second Medicare tax increase is 3.8%, and is on investment income if your Modified Adjusted Gross Income is above $200,000 filing single, or $250,000 filing jointly.  Investment income is considered interest, dividends, capital gains, annuities (but not annuities in company plans or IRAs), royalty income, passive rental income, and other passive activity income.  What is not considered investment income includes wages, self employment income, active trade or business income (including interest, dividends, and capital gains), distributions from IRAs/Roth IRAs/Company Retirement Plans, gain from the sale of a personal residence, municipal bond interest, proceeds of life insurance policies, veterans' benefits, or gains on the sale of an active interest in a partnership or S Corporation. 
 
One point to keep in mind is that taxable income from items that are not considered investment income can push you over the income threshold and cause your investment income to be subject to this additional 3.8% income tax.
 
With proper planning with your financial and tax advisor, you can start positioning your financial situation now in 2010 while these new taxes are not in effect so that when they are, the impact to your situation will be minimal.