MoFo Tax Talk - July 2012

Editor's Note

As tax lawyers we were interested to see the decision by the U.S. Supreme Court in National Federation of Independent Business v. Sebelius holding that the IRC Section 5000A(1)(b) "shared responsibility payment" provided for individuals that do not obtain health insurance beginning in 2014 is a tax. However, lost in the commotion was the fact that upholding the Affordable Care Act also means that as of January 1, 2013 the U.S. will have a new 3.8% tax on investment income including capital gains. Coupled with expiration of the Bush era tax cuts, this will mean a significant increase in federal taxes on investment income. The chart below shows the maximum federal income tax rate, assuming no changes to current law, that applies to an individual earning in excess of the threshold amount with respect to three categories of investment income for the years 2012 and 2013 (both taking and not taking into account the Medicare contribution tax starting in 2013).