Doh! Supreme Court Decision Locks in Higher Obamacare Taxes

In upholding King v. Burwell Thursday, the Supreme Court locked in tax hikes that will have significant implications for people in higher income brackets.

Someplace over the animated rainbow, Homer Simpson is banging is head against the wall.

Doh! Doh! Doh!

With Thursday’s Supreme Court decision, all of us high-earners are going to continue to pay higher taxes.

What do I mean by this exactly?

In King v. Burwell decision, the Supreme Court upheld tax credits in states without their own health insurance exchanges. In doing so, they locked in Obamacare's significant tax ramifications.

The Dreaded and Surprising Medicare Tax

First, there’s nearly a 1% Medicare tax (0.9% to be exact) on salary and self-employed income for folks making over $250,000 if you are married or $200,000 if you are single.

In the past, we have paid 1.45% as an employee and the employer has had to match that at another 1.45%.

Altogether, we’re looking at 3.8% in Medicare taxes on a go-forward basis.

This can be really frustrating because many employers have NOT been withholding the NEW 0.9% tax and then physicians get hit with a $2,000 or $3,000 extra tax bill that they weren’t expecting.

Make sure to review over your tax withholding and your previous year’s tax bill. If you received a refund last year, you’re probably covered! No worries!

The Cap Gains & Dividends Income 3.8% Medicare Tax

But…. That’s not all folks!

There is also 3.8% surtax on investment income dividends and long-term capital gains (positions held longer than a year). This means if you have realized capital gains and/or dividends from stocks or ETFs or mutual funds and you are making over $250,000 if you are married or $200,000 if you are single, then rather than owe the 20% (or 0%!) paid by folks in a lower bracket than you, you will owe 23.8%!

This means we need to be extra careful towards the end of the year.

Remember, look for harvesting capital losses. See my book, the Freedom Formula for Physicians for more details on tax strategies on how to keep your taxes low.

Final Thoughts

While we have no control over these taxes, you DO have control over how you manage your portfolio and your capital gains.

Make sure you are working with a proactive planner and a CPA who can guide you through the maze of the tax code.

Otherwise, we’ll be saying when our tax bill arrives… Doh! Doh! Doh!

Dave Denniston, Chartered Financial Analyst (CFA), is an author and authority for physicians providing a voice and an advocate for all of the financial issues that doctors deal with. He is the author of 5 Steps to Get out of Debt for Physicians, The Insurance Guide for Doctors, The Tax Reduction Prescription, and his new book, The Freedom Formula for Physicians. He hosts a podcast for doctors and the issues they face at www.DoctorFreedomPodcast.com.