Could the Wealthy Still Pay Obamacare Tax After Trump Plan Replacement?

Could the Wealthy Still Pay Obamacare Tax After Trump Plan Replacement?

It’s now June and the fight over the nation’s healthcare bill is still ongoing. It’s not that lawmakers aren’t trying to get something done that would ultimately replace Obamacare, but as with most things in Washington, it’s a slow-moving process. The House’s first attempt earlier this year was widely criticized and never got far. However, more recently the House voted in favor of a new plan that would repeal and replace the Affordable Care Act (ACA)…barely. The new bill passed the house by the slimmest of margins: 217-213, so it was anything but a slam-dunk.

What Will Happen to the Medicare Surtax?
Furthermore, the American Health Care Act bill now needs to get through the Senate, which is no guarantee. That means the wait for a change could still be very long and slow. Of the many sticking points – and there are many – one of the biggest is associated with taxes, specifically the Medicare surtax. Although the new bill is believed to be a big boon for the wealthy, the latest version of H.R. 1628 actually leaves a big part of the Obamacare tax in place, at least for several years to come.

Medicare Surtax Aimed the Wealthy
Here’s how it’s currently set up. The ACA added a Medicare surtax of 0.9 percent, which is an additional tax that applies to wages and self-employment income to people who earn more than $200,000, or couples who earn more than $250,000. Therefore, these taxpayers pay the regular Medicare tax, which is 1.45 percent on their income up to $200k or $250k, then an additional 2.35 percent on any income above those thresholds.

Wealthy Taxpayers Will Continue to Foot the Bill
While the first attempt to repeal and replace Obamacare called for an immediate repeal of this provision, the newest version of the bill does not. In fact, as it is written now this Medicare surtax would not be repealed until 2023, which means wealthy taxpayers would continue to pay this tax for at least six more years. So, while there are still plenty of tax cuts included in the new bill, the Medicare surtax is no longer one of them. For most taxpayers it’s not an issue, but for wealthy taxpayers, it means a significant number of dollars still going to help pay for Obamacare.

Repeal Now, Replace Later
Of course, it still remains to be seen what happens when the Senate votes on whether or not to pass the new bill, but President Trump just recently said last week that if the Senate could not pass the bill, then the Affordable Care Act should be repealed immediately and replaced later with another health plan. Some Senators already favor this move so it could become a reality if the Senate can’t push the current bill through. This long, ongoing, arduous battle continues to play out, and in the meantime, the only thing American taxpayers can do is sitby and wait to how it ends.

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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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