This week we did a seminar for over 400 tax professionals on the tax and insurance aspects of The 2010 Health Care Act and found it contained an overwhelmingly clear bias against married couples that the audience did not believe until we showed them the numbers. Here are a few examples that shocked a room full of tax experts and left us all wondering what else is hidden in the Health Care Act. We used the 2010 tables originally provided by the Congressional Budget Office and Research Services in our calculations.
The new .9% Medicare surtax uses a $200,000 income limit for unmarried Americans, but only a $250,000 income limit for married couples. The Medicare surtax only applies to W-2’s and similar earned income. If John and Sue each make $195,000 in wages and live together they would not pay any Medicare surtax. If however they make the ridiculous tax planning move of getting married their family earned income is $390,000 and they would owe $1,260 in additional tax! Oh we knew marriage hurt, but now we are going to put a price tag on it.
The new 3.8% anti-investment tax provides another instance of clear bias against married couples. The anti-investment tax only applies to interest, dividends and similar income. Let’s say that John and Sue each earn $195,000. Whether single or married they would not owe the anti-investment tax. But if they were so stupid as to actually save money and each earn $15,000 a year in interest or dividends they would each owe an additional $380 in tax if they remain unmarried ($760 total), but a whopping $1,140 in additional tax if they were married! They would have been distinctly better off not saving a dime and spending all of their savings to avoid the tax. Here’s an idea John and Sue-contribute all of your savings to a re-election campaign for your favorite politician. By the way in this example John and Sue would also owe the additional $1,260 from the previous Medicare surtax example if they were married, but no Medicare surtax if they were unmarried. This poor couple spent $2,400 each year just for wedded bliss as a result of the Health Care Act.
Don’t think this marriage bias is limited to high income Americans either. There is a new health insurance credit that will be available to Americans whose family income is 400% or less than the Federal Poverty level. Let’s say John and Sue each earns $30,000. Using the Health Care Act’s 6 step process here is what their credit is for health care, as long as they remain unmarried:
John makes $30,000 annually as a single man and Linda makes $30,000 annually as a single woman. They live together but are unmarried, thus they will each calculate their own credit individually.
- Step 1-Income $30,000
- Step 2-Percentage of FPL 250%
- Step 3-Personal Exemptions are “1”
- Step 4-Silver premiums for zip code estimated at $5,000 annually
- Step 5-Maximum annual premium $2,180
- Step 6-Credit equals $5,000-$2,180 or $2,820
- Their total credit is therefore $2,820 times 2 people or $5,640 every year
But again, if John and Sue are so stupid as to get married here is what happens:
John makes $30,000 annually. His wife Linda also makes $30,000 annually. They file a joint tax return
- Step 1-MAGI $60,000
- Step 2- Percentage of FPL >400&
- Stop-they do not qualify for the credit
If unmarried they receive $5,640 in credit but if they are married they receive $0 in credit.
Copyright © 2012 Jennings Advisory Group, LLC