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Medicare – The A B Cs (& Ds)


It seems like Medicare has been around forever, but actually, President Lyndon Baines Johnson called on the Congress to create Medicare in 1964 and signed the bill creating it on July 30, 1965. Medicare services began July 1, 1966 when more than 19 million Americans 65 and older enrolled in the program.

Basically, the traditional (or original) Medicare is a health insurance program and has deductibles and copayments. Medicare was not established to pay all the health care costs of participants. Routine vision and hearing care are not covered by traditional Medicare.

Components of traditional Medicare consist of three parts:

Participants enrolled in traditional Medicare may use services from health care providers who accept Medicare.

Medicare Advantage (also known as Medicare Part C plan) offers a variety of plans offering managed care options, or coordinated care options. These plans are offered by private insurers and health care organizations contracted with Center for Medicare and Medicaid Services (CMS).

Individuals are eligible to enroll for Medicare coverage the first day of the month in which they turn 65. They are eligible the month before they turn 65 if their birthday is on the first of the month. Medicare eligibility is tied to Social Security benefits. Individuals must be eligible for Social Security to be eligible for Medicare.

Additional information can be found at official Medicare website.



Could your investment income be subject to new 3.8 percent tax?

The IRS has issued final and proposed regulations on the calculation of the new 3.8 percent tax on net investment income that took effect Jan. 1, 2013.

The new tax, also known as the “3.8 percent Medicare surtax,” or “net investment income tax,” can affect joint filers and surviving spouses with modified adjusted gross income (MAGI) over $250,000, married couples filing separately with MAGI of more than $125,000 and others with MAGI above $200,000. Trusts and estates will also be subject to the new tax if they have income taxed in the highest marginal tax bracket – $11,950 for 2013.

Consider the following example: For 2013, a married couple has net investment income (NII) of $100,000 and MAGI of $270,000. They pay the surtax only on the $20,000 amount by which their MAGI exceeds their threshold amount of $250,000 because that is less than their NII of $100,000. Thus, the surtax is $760 ($20,000 × 3.8%).

Because the $250,000 and $200,000 thresholds are not adjusted for inflation, it is likely that more people will become subject to the surtax in future years as their income rises because of inflation and other factors.

For purposes of the surtax, NII is investment income less properly allocable deductions. Investment income is:

The surtax applies to a trade or business only if it is a passive activity or a trade or business of trading in financial instruments or commodities.

Investment income does not include amounts subject to selfemployment tax, distributions from tax-favored retirement plans (for example, qualified employer plans and IRAs), or tax-exempt income (for example, interest earned on state or local obligations).

The surtax does not apply to trades or businesses conducted by a sole proprietor, partnership or S corporation. But income, gain or loss attributable to an investment of working capital is not treated as derived from a trade or business and thus is subject to the tax.

Gain or loss from a disposition of an interest in a partnership or S corporation may be taken into account by the partner or shareholder as NII. This gain or loss is considered a part of the owner’s NII only to the extent the gain or loss from the deemed sale of the entity’s assets would have been NII if the partner or shareholder had owned and sold those assets himself/herself. For smaller taxpayers, a simplified calculation of the gain subject to the surtax is available.

The fact that self-employment income is not subject to the surtax does not result in a benefit to the self-employed. Beginning Jan. 1, 2013, the Medicare tax rate on earned income, including self-employment income, was also raised by 0.9 percent.

As a result, most people with MAGI above the $250,000/$200,000 thresholds will see an increase in their taxes for 2013.

IRS notice provides 2014 standard mileage rates

The IRS released Notice 2013-80 containing the standard mileage rates for 2014.

Beginning Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups and panel trucks) will be:

➤ 56 cents per mile for business miles driven (down a half cent from 2013)

➤ 23.5 cents per mile for medical or moving purposes (down a half cent)

➤ 14 cents per mile for charitable mileage driven (unchanged from 2013)

©2013 CPAmerica International



A new form is in the works to implement a portion of the healthcare law related to net investment income.

The IRS has released the first draft of Form 8960, Net Investment Income. Form 8960 will be used to report the new 3.8 percent Medicare tax on net investment income. The form will be attached to the 2013 Form 1040, U.S. Individual Income Tax Return, and the 2013 Form 1041, U.S. Income Tax Return for Estates and Trusts.

Beginning this year, individuals, estates and trusts whose modified adjusted gross income exceeds the threshold amount will be subject to the new 3.8 percent tax.

The threshold amounts are:

Net investment income (NII), for purposes of the 3.8 percent tax calculation, includes the following:

NII is the income after deductions for expenses that are “properly allocable” to the income, such as investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, etc. Investment income does not include wages, active business income, pension/IRA distributions or tax-exempt income.

Many of the entries on Form 8960 refer to instructions that the IRS expects to release later in the year.

©2013 CPAmerica International


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