IRS weighs changes to Obama healthcare investment tax rules

[steve2470]

http://news.yahoo.com/irs-weighs-changes-obama-healthcare-investment-tax-rules-221150703--sector.html

WASHINGTON (Reuters) - Businesses and wealthy owners of estates and trusts asked the IRS on Tuesday for changes to a part of President Barack Obama's 2010 healthcare law that has received comparatively little attention: a 3.8 percent tax on investment income intended to provide the bulk of the law's funding.

The tax kicks in this year, with U.S. taxpayers accounting for it for the first time in their tax returns for 2013. It is projected to raise more than $100 billion over a decade to help pay for health insurance for millions of Americans who lack it.

The Internal Revenue Service in December issued proposed regulations to implement the tax. On Tuesday, lawyers for various small and big businesses and owners of estates and trusts urged the agency during a public hearing over the IRS's proposed rules to clarify gray areas before they become final.

The tax applies to the investment income of individual taxpayers earning more than $200,000 a year, or households with income above $250,000. It is applied on top of the 20 percent tax now on investment income from dividends and capital gains.

*bolding mine*

[steve2470]

1. bump for visibility nt

[LooseWilly]

2. I'm curious about the specifics that are being asked for further clarification.

All the instances that the article mentions seem to me to be "passive" income.... which would therefore qualify as investment income (with the possible exception of those who are working leasing out planes, if they are "actively engaged" in the business... much as rental income is treated differently for "real estate professionals" vs. most who are renting out properties).

Trusts, as pass-through entities, wouldn't (I presume) themselves pay taxes on the investment income, but rather the beneficiaries would pay the tax on the "investment income" that is distributed to them, if their Adjusted Gross Income falls above the floor defined for the additional tax. Likewise with income passed through from Partnerships and LLCs and PTPs and S-Corps... I assume.

It would be funny though, if these entities and individuals tried to re-define these income streams as non-investment income... because, at that point, the income would be taxed as ordinary income (higher than the 20% capital gains + 3.8% new investment income rate) and would seem to be then subject to FICA taxes (well, Medicare, since the income levels we're talking about are already above the Social Security income taxation ceiling).

Curious.