Last Thursday, June 28th, the U.S. Supreme Court made a historic decision, upholding most of President Obama’s healthcare overhaul amidst a highly polarized debate. While the administration had long denied that the new law was a tax, the high court’s opinion was just that – the healthcare law is constitutional under congress’ ability to levy taxes.
While the crux of the law is an individual mandate that penalizes taxpayers for failing to obtain coverage, perhaps the greatest impact will be felt on unearned income. According to Bloomberg, individuals earning more than $200,000 annually, or couples earning more than $250,000, will face a 3.8 percent tax on income not from wages, including capital gains, dividends and private-equity managers’ profits on leveraged buyouts. Additionally, those same taxpayers will be taxed nearly one percent extra on any wages above the $200,000 mark.
For private equity and hedge fund managers, the new law may carry significant consequences because of the potential impact on carried interest. To make things worse, the Bush tax cuts are set to expire at the end of this year. Capital gains, which is already set to rise from 15 to 20 percent, will take another jump to nearly 40 percent. Meanwhile, dividends tax for high earners would jump to more than 43 percent.
A Bloomberg article on the tax impact of the new law can be found here.