group of high income individuals reads about subcharge

Surcharge on High-income Individuals, Estates, and Trusts:

By: John Conner

A new Code §1A would impose a tax on “modified AGI” over $10 million of 5% for individuals ($5 million for married taxpayers filing separately) and $200,000 for an estate or trust, plus 3% of modified AGI over $25 million for individuals ($12.5 million for married taxpayers filing separately) and $500,000 for an estate or trust.

Comment: Although these thresholds are relatively high and most taxpayers would not be subject to them on an annual basis, gains on the sale of a long-term business interest might fall victim to these surtaxes. And, when you add the 3.8% Medicare surtax, you get a potential 48.8% (i.e., 37% + 5% + 3% + 3.8%) effective marginal rate on ordinary income.

Comment: Because these surtaxes on AGI (v. taxable income), wealthy taxpayers will not have the advantage of deducting sizable itemized deductions that they might otherwise have. And, there is no distinction for the various types of income which are normally taxed at special lower rates such as qualified dividends, LTCGs or “unrecaptured Sec. 1250 gains.”

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