The Senate and the House of Representatives passed H.R. 4872 (the Health Care and Education Reconciliation Act, or the “Reconciliation Act”). The Reconciliation Act amends H.R. 3590 (the Patient Protection and Affordable Care Act, or “PPACA”), which is the Senate health care reform bill that President Obama signed into law earlier this week.
The Reconciliation Act includes a provision that expands the Medicare hospital insurance (HI) tax for high income taxpayers to cover certain forms of investment income, including annuity distributions.
The new HI tax on investment income will be imposed at a 3.8% rate. This rate coincides with a provision in the PPACA that levies an additional 0.9% HI tax on wages of certain individuals with high wage income. The 0.9% increase, when added to the existing HI tax rates on wages, brings the top combined HI tax rate (i.e., both the employee-paid and employer-paid components) on wages to 3.8%, which coincides with the 3.8% rate under the new HI tax on investment income.
