Obamacare (And Net Investment Income Tax) Repeal

On January 4th, the United States Senate voted 51-48 on a motion to move forward with a budget resolution which instructs the authorizing committees to submit legislation.  Included in the measure was a reconciliation instruction that would allow most of the Affordable Care Act to be repealed on a simple majority vote in the Senate instead of the typical 60 vote majority.  Democrats used the budget reconciliation process in 2010 to pass large parts of Obamacare to avoid a Republican filibuster, however, there may be other parts of the law that cannot be repealed under the budget reconciliation process.  President Obama made an appearance on Capitol Hill on the same day to meet with Democrats from both chambers and instructed them to not assist Republicans to develop a new healthcare law.  Thus, it is unclear what will happen to the parts of Obamacare that were passed with a 60 vote Senate majority in 2010 since Senate Democrats are unlikely to cooperate with Republicans in drafting replacement legislation.

Included in the 2010 reconciliation process was the 3.8% Medicare tax on net investment income (unearned income of individuals, estates and trusts) to help subsidize the health care law. Beginning with tax year 2013, Married couples filing a joint return with modified adjusted gross income (MAGI) in excess of $250,000 and single taxpayers with MAGI in excess of $200,000 have been subject to the additional 3.8% tax.  For example, a married couple with wages of $225,000 and investment income (interest, dividends, capital gains, etc.) of $125,000 currently owe an additional $3,800 ($225,000 + $125,000 – $250,000 x 3.8%) in taxes when filing their individual income tax return.  Conversely, a single taxpayer would owe $4,750 with the same facts (MAGI is greater than $200,000 before factoring in any investment income therefore the entire $125,000 is subject to the 3.8% tax).  It is expected that this tax will be repealed as part of the health care overhaul in what will likely be one of several reforms to the tax code under a Trump administration.