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ACA 'Medicare Tax' Revenue Should Go to Medicare: Senior Citizens League

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What You Need to Know

  • The 3.8% net investment tax is one of two Medicare taxes included in the ACA.
  • The tax could generate $27.5 billion in revenue this year.
  • The revenue flows into the general fund.

The Senior Citizens League is trying to get attention for federal budget proposals that could move revenue from the 3.8% net investment tax into the Medicare Part A hospitalization plan trust fund.

Actuaries predict the Medicare Part A trust fund will become insolvent around 2024. Projections show the fund needs about $515 billion more revenue increases and spending cuts over the next 10 years to come into balance.

Money from the 3.8% tax now flows in the U.S. Treasury Department’s U.S. general fund. The tax will generate about $27.5 billion for the fund this year.

“Now those revenues are needed by the Medicare Part A Hospital Insurance Trust Fund,” according to Mary Johnson, a Medicare policy analyst for The Senior Citizens League.

3.8% Tax History

The net investment tax imposes a 3.8 percentage point increase in the tax rate for the net investment income on high-income taxpayers.

Congress created the tax with a provision in the Affordable Care Act. Former President Barack Obama signed in the two bills that created the ACA package in 2010.

The ACA also includes a second Medicare tax — an extra 0.9 percent point increase in the Medicare tax rate paid by individuals with annual income over $200,000 and couples with annual income over $250,000.

The administration of President Joe Biden has released a budget proposal that calls for sending net investment tax revenue to the Medicare Part A trust fund.

(Image: Adobe Stock)