The new health care law passed by Congress in 2010 has been gradually phasing in health care reform measures each year since its enactment. Two Medicare tax increases are part of these health care reform measures that will become effective January 1, 2013. The two Medicare tax increases that will affect farming income for higher-income farmers are:
- A 0.9% increase in the existing Medicare tax on "earned" farming income, such as farming wages or self-employment income from farming, and
- A new 3.8% Medicare tax on "unearned" or "passive" farming income.
The 0.9% increase represents an increase on the existing Medicare tax that is part of the payroll tax applicable to farm and non-farm wages or self-employment income. The 3.8% increase is novel because this is the first time that Medicare tax will apply to "passive" types of income. These Medicare tax increases will only affect farmers in years when combined farming and non-farming income exceed:
- $200,000 (for individual filers) or
- $250,000 (for farmers filing jointly with spouses).
In addition, the Medicare tax increases will only apply to the combined amounts of farming and non-farming income that falls above these thresholds within the tax year. Farmers with incomes below these thresholds will not be affected.
More at: http://farmdocdaily.illinois.edu/2012/10/farms_and_the_new_2013_medicare.html