ACA surtaxes can refer to one of two new taxes created by the Affordable Care Act.
- A 0.9% surtax on wages above $200,000 for a single person, and $250,000 for a married person
- A 3,8% surtax on investment income for people whose income is above $200,000 if single and $250,000 if married
Mechanics of 0.9% Surtax
For people who are employees, the surtax will be taken on any wages paid above $200,000, regardless of the employee’s marital status. The employee will need to fill out a form (Form 8959) to reconcile the amount of surtax paid vs. the amount the employee is actually liable for.
Joe makes $210,000 at his job. His wife is a homemaker and has no income. Joe’s employer correctly started withholding an extra 0.9% once his wages reached $200,000. The extra withholding amounted to $90 (0.9% x $10,000).
Since Joe is married, the surtax doesn’t actually kick in until he and his wife’s total earned income reaches $250,000. Joe will fill out Form 8959 to get a refund of the $90.
Mechanics of the 3.8% Surtax
The surtax is levied on the lesser of: total investment income, or amount of total income in excess of $200,000 if single or $250,000 if married.
Investment income includes things such as:
- Capital gains
- Income from passive activities
Investment income does not include retirement income, pensions, Social Security, etc.
The 3.8% tax is levied on the smaller of total investment income or total income in excess of the $200,000/$250,000 thresholds.