The Patient Protection and Affordable Care Act, also known as Obamacare, has created a lot of controversy, and many taxpayers are especially unhappy with new taxes that Obamacare created on wages and net investment income above certain limits. Even though those taxes are aimed at high-income taxpayers now, there's one little-known aspect of those taxes that will lead more people to pay them over time.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, explains how the income limits for the 0.9% Medicare surtax and the 3.8% net investment income surtax aren't indexed to inflation. Right now, limits of $200,000 for single filers and $250,000 for joint filers only capture those at the highest income levels. But over time, as inflation raises wages, Obamacare's failure to adjust those limits for inflation will lead to an increasing number of taxpayers having to pay the tax, eventually capturing ordinary middle-class Americans. Dan runs through how the same thing happened with the Alternative Minimum Tax until lawmakers added an inflation-indexing provision last year, and concludes that Obamacare taxes need the same provision in order to avoid snaring millions of unsuspecting taxpayers in the long run.
