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The IRS has issued a Q&A sheet for this new tax effective in 2013.

http://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-FA...

Phil
Rule Your Retirement Home Fool
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And from that same page, there was this link to the additional Medicare tax:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Em...

This one is more convoluted. If you are married and filing jointly, the income threshold is $250K. So, basically, everything the two of you pull in over $250K gets slapped with a 0.9% Medicare tax. But your employer only collects the tax on individuals once they surpass $200K which is the limit for single filers. Well, if you and your spouse make $150K each, your employers take nothing extra because individually you are both below $200K. Here's the rub. At $150K each, you must make estimated tax payments using a W-4. In this example, the combined income totals $300K, or $50K subject to this tax. The examples provided on the website do not address what happens if the additional estimated payments are not made. What happens if you make estimated payments and it wasn't enough? Will you just write a check at the end of the year like you do with the Federal income tax return or will they just take more out of your salary over the following year? This is not addressed and I can see this happening A LOT because many people will not get to the $250K level jointly until the very last couple of weeks of the year, when they get paid BONUSES that they have no way of being able to estimate as they vary from one year to the next.
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What happens if you make estimated payments and it wasn't enough? Will you just write a check at the end of the year like you do with the Federal income tax return or will they just take more out of your salary over the following year?

You settle up when you file your return for the year.

Phil
Rule Your Retirement Home Fool
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You settle up when you file your return for the year.

So, it would be possible to not make estimated tax payments at all so long as a couple just writes the check at the end?

It'd be nice if this was stated on the website as the website sounds pretty adamant that a couple MUST make estimated payments.
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So, it would be possible to not make estimated tax payments at all so long as a couple just writes the check at the end?

As the late, great Katherine Kuhlman was fond of noting, "Anything is possible with God."

Nothing has changed about prepayment rules, which cover everything on the 1040. Estimated tax payments are one method for avoiding an underpayment penalty. There are others, all of which are covered in detail in Pub 505.

Phil
Rule Your Retirement Home Fool
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At $150K each, you must make estimated tax payments using a W-4.

I haven't researched this, and all my research tools are at the office. (OK - they're all on the internet, but the passwords and account numbers are at the office.) Further, I haven't read any of the links posted earlier in the thread. So I'm just doing some educated guessing.

A W-4 is for adjusting your income tax withholding, not for making estimated tax payments. (Those are done with Form 1040-ES.) I'm pretty the IRS is saying you can adjust your income tax withholding to account for this additional tax. That would be consistent with those who have some self employment income in addition to their wages.

And your forgot the other side of the coin. Take that married couple, but only one is working and making $220k. That spouse will have the medicare surtax withheld, but the couple won't be subject to the tax. I'm sure the overwithholding will be handled just like additional income tax withholding on the tax return.

I'm seeing another worksheet or perhaps a new form in the not too distant future. One to calculate the correct amount of this Medicare surtax and reconcile it with the Medicare taxes withheld. Schedule MC, perhaps?

--Peter
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A W-4 is for adjusting your income tax withholding, not for making estimated tax payments. (Those are done with Form 1040-ES.) I'm pretty the IRS is saying you can adjust your income tax withholding to account for this additional tax.

From the website:

Will I need to make estimated tax payments for Additional Medicare Tax?

If you anticipate that you will owe Additional Medicare Tax but will not satisfy the liability through Additional Medicare Tax withholding and did not request additional income tax withholding using Form W-4, you may need to make estimated tax payments. You should consider your estimated total tax liability in light of your wages, other compensation, and self-employment income, and the applicable threshold for your filing status when determining whether estimated tax payments are necessary.


I'm not sure how additional Federal Income Tax withholding helps with the Medicare Tax unless there is a provision to apply any overage to the Medicare tax -which will probably mean another form.

And your forgot the other side of the coin. Take that married couple, but only one is working and making $220k. That spouse will have the medicare surtax withheld, but the couple won't be subject to the tax. I'm sure the overwithholding will be handled just like additional income tax withholding on the tax return.

I did not forget it actually...this situation was addressed in the FAQ's...
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The politicians in DC need to get a brain. There is no reason, no reason at all why we can't have a plain and simple income tax in the US.
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I'm not sure how additional Federal Income Tax withholding helps with the Medicare Tax unless there is a provision to apply any overage to the Medicare tax -which will probably mean another form.

Maybe it will be clearer to you if you look at the back of the 1040. After income tax and credits against it you come to "Other taxes." All sorts of things in addition to income tax are paid on the 1040. Then you come to payments, where your withholding, regardless of how it was calculated, is credited.

Yes, some calculation method will have to be added. Whether it's a Form, Schedule or worksheet we won't know until the 2013 draft forms are available.

Phil
Rule Your Retirement Home Fool
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There is no reason, no reason at all why we can't have a plain and simple income tax in the US.

Oh, I'd say there are 100 million plus reasons.

An interesting experiment. Poll your acquaintances about what income tax bennies they're willing to give up. Start with the mirror.

Phil
Rule Your Retirement Home Fool
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An interesting experiment. Poll your acquaintances about what income tax bennies they're willing to give up. Start with the mirror.

Derailing the thread...

For 2012 I'm benefiting from the following:

-one of the many higher education tax breaks (lifetime learning, not hope credit, tuition/fees deduction or interest deduction)
-one of the child tax credits (the regular one, not the additional or the EITC)
-one of the several dependent care benefits. Next year I'll take both the dependent care FSA, and the dependent care tax credit (not on the same expenses of course)
-medical FSA (but not the medical itemization deduction
-various other exclusons from my wages before they even hit my W-2 (401k, health care excemption). I choose to use my 401k as my retirement benefit, but I also have a Roth IRA, and have used a non-deductible traditional IRA in the past.

Not even including the lower tax rates from the 2001/2003 acts, 2% FICA tax cut, dividend tax cut, etc).

I'd give up some of the dollar amount of these benefits if they were more simplified, easier to understand and uniform to all tax payers.

The FSA's require my employer to offer them. Untie them from employment and let anyone take the deduction.

Offer ONE higher eduction tax break (I'd go with the tuition and fees deduction capped at $1,000 PER CREDIT myself, even if this doesn't give the same dollar benefit I get now, its easier to understand.)

Simplify retirement tax breaks - again, 401ks require employers to offer; and I have a magnatude of choices (and self employed have even more). I'd like to see the 401k contribution limit and the IRA limit the same. Keep 401ks and IRAs (traditional and Roth) and give all other retirement options a look to see if they can be taken off the books.

People often complain that tax prep costs money. I find (and I imagine that many people who have savings / are able to save) that understanding the vast number of breaks and types of accounts available is more complex than actually preparing my taxes (and I have a finance/accounting background).
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Let's work on reading comprehension. Quoting the IRS again:

If you anticipate that you will owe Additional Medicare Tax but will not satisfy the liability through Additional Medicare Tax withholding

My explanation:

You are going to owe the Medicare tax AND your employer is not withholding it for you. That's the situation you brought up earlier - two spouses, each earning $150k. Neither will have the extra tax withheld, so the payment of that tax is going to have to happen some other way.

Back to the IRS:

and did not request additional income tax withholding using Form W-4,

That is not saying to make estimated tax payments. It's implying that you could ask your employer to withhold additional income tax. You do that by filling out a W-4 to ask for the additional withholding. As a bit of an aside, you accomplish that by claiming fewer withholding allowances OR by asking for an additional dollar amount of withholding per paycheck.

you may need to make estimated tax payments.

It broken up a bit now, but if you don't ask for the withholding from your employer, only then would you need to think about estimated tax payments.


I'm not sure how additional Federal Income Tax withholding helps with the Medicare Tax unless there is a provision to apply any overage to the Medicare tax

There is.

-which will probably mean another form.

That's one possibility. The other is a worksheet in the instructions. In either case, it will be something that accompanies your income tax return and will require one or two additional lines on your income tax return. It won't be a form that's filed separately.

If you use software (or a paid preparer) there will be almost no additional work for you beyond checking the results. Turbo Tax and its brethren will ask you for all of your W-2 information, just like they do now. That information includes the amount of Medicare tax withheld. With that plus the other information needed to prepare your tax return, the software (or preparer) has everything it/he/she needs to figure up the correct Medicare tax.

This really isn't as hard as you're trying to make it. In the end, money is money. The IRS won't care what you called it when it was paid in, they let you net all of this out and come up with a single combined under or over payment of your combined tax liabilities.

--Peter
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Offer ONE higher eduction tax break (I'd go with the tuition and fees deduction capped at $1,000 PER CREDIT myself,

Yeah - cause "credit" is consistent from one institution to another.
< /sarcasm >

I've been involved with one institution that's on quarter system (credit is roughly 1 hour/week * 10 weeks), another on semester system (credit is roughly 1 hour/week * 15 weeks) and another where they don't even use the term "credit", but rather "unit".
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Poll your acquaintances about what income tax bennies they're willing to give up. Start with the mirror.

My mirror tells me: all of them, in exchange for a flat 10% tax rate that everybody pays. Very close to the top of your 100 million reasons for our complexities is the politicians' penchant for using our taxes for social engineering. This is done generally with the best of intentions, sometimes for buying votes, always counterproductively.

Eric Hines
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Yeah - cause "credit" is consistent from one institution to another.
< /sarcasm >




I've been involved with one institution that's on quarter system (credit is roughly 1 hour/week * 10 weeks), another on semester system (credit is roughly 1 hour/week * 15 weeks) and another where they don't even use the term "credit", but rather "unit".


I would argue that tuition is even more inconsistent and that's what we currently base the tax break on. I recognize your point though. If doing it by credit is too unevenly applied, then lets use some other methodology that's more even. But lets use ONE methodology; not four (and this discussion is only about tax breaks for paying with taxable dollars - don't forget the various options for tax-free savings for education: QTP/529, prepaid, ESA, savings bond program).

I think my point is still valid - there for many life events, there are a myriad of tax breaks, all with different restrictions and limitations. Luckily, most software will run the numbers for them, but thats only after the decision has been made. It still can be very time consuming and complex to determine what the right decision is - the tax software will only let you know if it was the right decision.
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a flat 10% tax rate that everybody pays.

10% of what? The vast majority of tax law is devoted to defining income. Unless we're talking about a gross receipts tax there's little simplicity in a "flat" tax.

Phil
Rule Your Retirement Home Fool
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My mirror tells me: all of them, in exchange for a flat 10% tax rate that everybody pays.

10% would not be sufficient. The estimates I seen are closer 30-35% would be required.

Half of the country doesn't pay income tax. More than half receiving payments from the government if you consider government pensions, Social Security, food stamps, welfare, etc.
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From one perspective, I'd love a 10% flat tax--just charge my husband and me 10% on ALL our income (wages, investments, capital gains--no deductions for anything) and I'd save a huge amount of time that I currently spend doing our taxes AND we'd save about 36% on 2012 taxes.

However, after I graduated in 1981, I taught at a small, private school in Fremont, California, and earned $10K/year. To have paid $1000 in federal income taxes would have been challenging--and I was single with almost no debt, rode my bike to work (and showered at work), house-sat for deployed military personnel (and still paid rent), ate no meat or cheese (eggs were a much cheaper source of protein), had no cable or satellite TV, no internet.

According to US Census data, in 2009, 13% of US households had income of under $15K/year. Yes, with a flat tax, the percentage is the same for everyone, which, on the surface, appears to be fairer than the convuluted mess we have now. Yes, social engineering certainly has the opportunity to cause as much damage as it fixes. But assuming a flat rate tax, the difference between my after-tax funds just out of college and our after-tax funds now is substantial: the one was barely liveable WITHOUT a 10% flat-tax; our current allows considerable luxury even with the current tax system.

I'd LOVE to keep more of my money. But someone has to pay for our government, and I am much more able to afford the 17% that I currently pay on my adjusted gross than some would be able to pay a 10% flat tax.

Kathleen
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My mirror tells me: all of them, in exchange for a flat 10% tax rate that everybody pays.

By the way, the 9-9-9 flat tax plan included a 9% sales tax, plus 9% personal income tax and 9% corporate income tax.
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10% of what? The vast majority of tax law is devoted to defining income.

Your question was open-ended. My response also was intended to be all-inclusive. All income: wages and salaries, interest payments, dividends and capital gains, gambling earnings, pass-throughs from their small businesses, and so on.

Eric Hines
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10% would not be sufficient. The estimates I seen are closer 30-35% would be required.

In 2007, according to Census Bureau data collected from IRS-aggregated Form 1040 filings, Americans earned $17.8 trillion dollars from all sources: wages and salaries, interest payments, dividends and capital gains, gambling earnings, pass-throughs from their small businesses, and so on. In 2007, according to Government Accounting Office data, Americans paid an aggregate of $1.15 trillion dollars in taxes on that income, under the varying rates and filing categories.

That was a 6.5% tax rate, in the aggregate; I'm actually proposing a net increase.

On the other hand, required for what? It's not yet been established that the government needs all the revenue it's collecting now.

Eric Hines
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By the way, the 9-9-9 flat tax plan included a 9% sales tax, plus 9% personal income tax and 9% corporate income tax.

Yeah, and I disagreed with Mr Cain on two of those. A sales tax, unless it becomes as caveated and Byzantine as our current system, is hugely regressive, and--heresy alert--I don't think businesses should pay any sort of income tax (or get any tax bennies). In the end, even though it's a businessman who signs the tax check, it's the end customer who pays the tax, in the form of prices adjusted to cover what is, essentially, just another cost center.

Eric Hines
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On the other hand, required for what? It's not yet been established that the government needs all the revenue it's collecting now.

Sorry, you can only recommend a post to the Best of once.

George
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On the other hand, required for what? It's not yet been established that the government needs all the revenue it's collecting now.

Of course the government needs the revenue. For what, you ask? Well, when DW joins me on Medicare next year and we are both paying less than half of the premiums we've been paying privately, and with much lower copays and deductibles, we'll be able to afford a European trip each year with the savings. So pony up, taxpayers.

--fleg
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I don't think businesses should pay any sort of income tax (or get any tax bennies)

Unfortunately, corporations are being made to be evil. Instead of having corporations fleeing to tax havens, changing the US tax policies would bring much of that money back into the US.
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I'd LOVE to keep more of my money. But someone has to pay for our government, and I am much more able to afford the 17% that I currently pay on my adjusted gross than some would be able to pay a 10% flat tax.

Kathleen


Here is what I once wrote on this topic:


I once proposed a *true* flat tax, meaning that there are *no* exemptions, personal deductions, or tax-free income, and *all* income would be subject to one low flat rate. Everyone would have the exact same marginal and effective tax rates. The tax rate would be pretty low because the tax base would be maximized by eliminating exemptions, deductions, and tax-free income.

http://boards.fool.com/ot-the-madcapitalist-tax-reform-act-o...

This wouldn't fly with a lot of people though, so we could subsidize the exact same things as we do now through the tax code, except do it *explicitly* through spending.

For example, the tax code currently subsidizes home ownership through mortgage interest and real estate tax deductions for those who itemize deductions (i.e. mainly taxpayers with higher incomes). We could still subsidize this by forcing citizens to go to a different government department and filing a separate form to collect their goodies. Then the government could send them a check, making the spending completely explicit.

Of course, this wouldn't fly with our politicians, because if it's one thing that they hate, it's making things explicit and transparent.

I was trying to come up with a good name for the new department to distribute the goodies. The one that I came up with was:

Department of Government Goodies that I Didn't Earn but Still Feel that I'm Entitled to Just for Being Alive
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In the end, even though it's a businessman who signs the tax check, it's the end customer who pays the tax, in the form of prices adjusted to cover what is, essentially, just another cost center.

While it's true that costs get passed onto consumers, it is not true that the ratio is 1:1. So the consumer would only pick up a percentage of any "tax" that the businessman would, with the businessman picking up the remainder of the percentage out of their profits. The exact ration would depend on the economic sector and its price elasticity.
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While it's true that costs get passed onto consumers, it is not true that the ratio is 1:1.

True enough. However, rather than getting another thousand pages of rules for parsing out the splits--or leaving things as they are, with me being taxed if not twice, then still more than once--I'd as soon eliminate the business tax.

Eric Hines
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I was trying to come up with a good name for the new department to distribute the goodies. The one that I came up with was:

Department of Government Goodies that I Didn't Earn but Still Feel that I'm Entitled to Just for Being Alive


I think a more correct name would be:

Department of Goodies Congressmen Want to Distribute to their Friends and Campaign Contributors, but Have To Include Others as well to Maintain a False Facade of Fairness
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Department of Government Goodies that I Didn't Earn but Still Feel that I'm Entitled to Just for Being Alive
-------------
I think a more correct name would be:

Department of Goodies Congressmen Want to Distribute to their Friends and Campaign Contributors, but Have To Include Others as well to Maintain a False Facade of Fairness



certainly how I think if my SSI..
and Medicare..
and VA Bennies !!

stuff I didn't in any way earn, but given to me by
a Congress to pacify me.
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I was trying to come up with a good name for the new department to distribute the goodies. The one that I came up with was:

Department of Government Goodies that I Didn't Earn but Still Feel that I'm Entitled to Just for Being Alive


I think a more correct name would be:

Department of Goodies Congressmen Want to Distribute to their Friends and Campaign Contributors, but Have To Include Others as well to Maintain a False Facade of Fairness



I don't know about that. The vast majority of government spending consists of payments to individuals (although I admit that AARP is a huge campaign contributor behind this).


America’s real long-term fiscal problem: The federal government has become a gigantic wealth-transfer machine

"In 1952, less than one out of every six dollars spent by the federal government represented payments to individuals. By 2010 payments to individuals had increased so dramatically over time that roughly two out of every three dollars (66.1 percent) spent by the federal government in that year were payments to individuals for programs like Social Security, Medicare and Medicaid, public assistance, food and housing assistance, and unemployment assistance.

----------------------------------------

2. At the same time that payments to individual Americans consume an increasing share of federal spending, the burden of taxes to finance federal spending is falling on a shrinking group of American taxpayers. According to a recent study by The Tax Foundation, 41 percent of federal income tax filers in 2010 had a zero or negative federal income tax liability after taking deductions and credits..."

http://www.aei-ideas.org/2012/09/americas-real-long-term-fis...
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I would prefer a transaction tax. It would elimimate all other taxes, state, city, county. This would be a true "Fair" tax. Obviously you could not pay taxes by not buying anything. Rich and poor alike would pay the same low transaction tax on all goods and services.
Just think. For most of us no more deadline and no more worry. You pay as you go. Monies are collected as though it were a sales tax.
This would eliminate all loopholes except for blackmarket sales. We are currently not collecting taxes on all manner of blackmarket goods. However those in the blackmarket do buy goods from legal vendors
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Rich and poor alike would pay the same low transaction tax on all goods and services.

To be revenue neutral that "low" transaction tax rate would have to be something like 31%.

Phil
Rule Your Retirement Home Fool
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