For many, the first sign that The Patient Protection and Affordable Care Act, also known as Obamacare, had taken effect came in October, when health-insurance exchanges rolled out for the first time. But two tax provisions linked to Obamacare have been in effect since January, and they could make a big impression on your tax return.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, discusses two of the taxes that were included in provisions of the Affordable Care Act. He explains how one imposes an extra 0.9 percentage-point tax on Medicare withholding for certain high-income taxpayers, and how because of the special mechanics of how the tax is imposed, you might have to report it on your tax return rather than having had it withheld from your paychecks during the year. Second, a new net investment income tax of 3.8% applies to investment income for the same high-income taxpayers, defined as single filers with more than $200,000 in income or joint filers with more than $250,000 in income.
Dan points out that while the wage tax is one that most people can't avoid, there are steps you can take to reduce taxable income. By using ETFs like iSharse National AMT-Free Muni (NYSEMKT:MUB), SPDR Nuveen Muni (NYSEMKT:TFI), and PIMCO Intermediate Muni (NYSEMKT:MUNI), investors can shelter at least part of their investment income from the new Obamacare tax.
Fool contributor Dan Caplinger has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.