Regardless of what does, or does not happen with the “fiscal cliff,” some consumers will see some tax increases in 2013, part of the Affordable Care Act.
And while Republicans and Democrats spent the last two months arguing over whether families earning $250,000 or more a year should pay a higher income tax rate, it's already been decided that that group will face a higher tax on investments in 2013.
It's called the Net Investment Income Tax. It imposes an extra 3.8 percent tax on investment income earned by individuals, estates and trusts that have certain investment income above certain threshold amounts. That group will also pay more in Medicare tax.
The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers.
An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.
Medical device tax
An excise tax on medical devices, such as artificial hips, goes into effect in 2013 as a way to help pay the cost of expanding health care coverage. Most consumers won't feel the tax directly but could eventually see higher health care premiums as the costs of these devices go up.
One potential tax increase many consumers could face in 2013 is a change in the way the Internal Revenue Service (IRS) treats employer-paid health benefits. Currently, this benefit is not taxed, providing a huge financial benefit to consumers who have it. It's the biggest middle-class tax break on currently on the books – even bigger than the mortgage interest deduction.
For example, if your employer pays $1000 a month for its share of your health coverage, you would have to report that $12,000 as income on your taxes. Many economists believe Congress will have to consider that change in 2013, although there will be strong bipartisan opposition.
There's another tax increase, unrelated to health care, that all workers will feel in 2013. The payroll tax, used to finance Social Security and Medicare, will revert to its normal level. For the past two years the government reduced the employee share by two percentage points, as part of an effort to stimulate the economy. Since neither Republicans nor Democrats have suggested extending the tax holiday another year, it seems certain that consumers' paychecks will be a little smaller in 2013.