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October 02, 2012 at 02:17 AM
Michael Kitces, Pinnacle Advisory Group’s managing director of research and AdvisorOne contributor, took the stage at FPA Experience 2012 on Monday in San Antonio to warn advisors of impending Medicare tax hikes and offer up solutions to help minimize their potential impact on clients.
“The new Medicare taxes will arrive in January of 2013,” he explained. “These are part of the health care overhaul bill and not a result of anything to do with the Bush tax cuts.”
This means, he added, that short of a 100% repeal of the law, the taxes will go into effect.
“Even if Republicans win big in November, they might repeal portions of the law here and there,” he argued. “But no one expects the entire law to be repealed, the increases are inevitable. They are certainly not going to repeal anything that increases government revenue.”
The new Medicare taxes will apply to earned income, including wages and self-employment, as well as unearned income, which mean dividends and capital gains. The increases will apply to individuals making more than $200,000 a year, or $250,000 for married couples. According to estimates from the Tax Policy Center, about 4 million households will initially be affected by the increase and in 10 years that number will more than double.
“As a result, it’s a new planning world when dealing with these taxes,” he continued. “It will be critical for advisors to apply avoidance and reduction strategies.”
