US Senate Wraps Up Health Bill

by Mike Godfrey, Tax-News.com, Washington

29 March 2010

The United States Senate has approved changes to the landmark health care reform bill signed into law by President Barack Obama on March 23.

The Senate legislation attempts to improve affordability of health care coverage by increasing tax credits to help Americans pay for insurance premiums. The legislation also seeks to save taxpayer dollars by attacking waste, fraud and other abuses in the health care system.

“The bill we passed today is a set of common‐sense improvements to the historic health care reform law," commented Senate Finance Committee Chairman Max Baucus, who drafted a substantial proportion of the health care reform law, as well as the new improvements.

"The improvements passed today (March 25) build on this landmark law and make health care more affordable for families, seniors, small businesses and federal and state budgets," he added.

The health care law includes, among many other tax increases, two tax hikes on high-income taxpayers set to go into effect in 2013: a higher employee Medicare tax on wages earned above USD250,000 (married; USD200,000 for singles); and a 3.8 percent Medicare tax on investment income earned by couples earning more than USD250,000 in modified adjusted gross income (USD200,000 for singles). Investment income includes such sources as rental income, dividend income, interest income, income from trusts, and most capital gains.

According to the Tax Foundation, a non-partisan fiscal policy think tank, the higher medicare taxes will have a negligible impact on single and married taxpayers just above the threshold. A single taxpayer earning USD200,100 and a married taxpayer earning USD250,100 per year in wages would pay just an additional USD0.90 in medicare tax. Single and married taxpayers earning USD300,000 and USD350,000 per year, respectively, in wages would both pay USD900 more per year in medicare taxes.

However, the tax gets considerably more burdensome for married taxpayers declaring substantial amounts of investment income in addition to wages. The Tax Foundation calculates that joint filers earning USD370,000 per year in wages and USD1.5m per year in investment income would currently pay USD10,730 in medicare taxes. However, after the changes come into effect, they would pay and additional USD58,080 in tax.

Joint filers earning USD5m per year in investment income, and who currently pay no medicare taxes on that income, would be required to pay USD180,500 after the new levies kick in, the Tax Foundation finds.

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