One of the new taxes that went into effect with the new year may actually comply with the president's pledge not to raise rates on families making less than $250,000 a year, but experts tell Sunshine State News it spells bad news for millions of small-business owners.
The measure in question is a new 3.8 percent surtax on investment income earned by households making at least $250,000 (and single persons making $200,000) a year. The new tax went into effect Jan. 1, and is expected to yield the federal government some $123 billion by 2020.
Whether people realize it or not, they're paying this right now, Ryan Ellis, tax policy director for Americans for Tax Reform (ATR), tells SSN. And they're really going to pay it next spring when they go to file their taxes.
Investment income, often referred to as unearned income, includes portfolio income, such as interest dividends and capital gains; income made by so-called silent partners, shareholders who don't run businesses on a day-to-day basis; and income made from rentals.
The tax especially affects so-called Sub-S corporations, corporations taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. These corporations do not pay federal income taxes; instead, profits are divided among shareholders, who then pay individual income taxes on those profits.
Bill Herrle, Florida executive director for the National Federation of Independent Business (NFIB) warns the measure is another big-government blow to small businesses.
It's the details like these in the overall Obamacare package that make me want to walk upon all fours when I hear 'It's the law of the land,' a balm to discourage active, questioning, citizens, he fumes. The surtax on investment income is aimed squarely at the budding entrepreneur. Sub-S corporation structure is typical in young, emerging businesses, even more so in Florida, with the absence of [a state] income tax. This tax impoverishes small business re-investment in Florida.
Herrle says that almost two-thirds of NFIB members in Florida are organized as Sub-S corporations.
If your household makes more than $250,000, in addition to all the other taxes you have to pay on that, like your ordinary income tax which goes as high as 39.6 percent now or capital gains dividends tax, which for these households would be 20 percent, you're paying an additional 3.8 percentage points, Ellis explains, bringing those top income brackets to 43.4 percent and 23.8 percent respectively.
This [new tax] will have negative economic ramifications, leading investors to sell assets ... and to avoid new investments, ATR cautioned back in June. Whatever you call it, the Obamacare surtax on investment income is ultimately $123 billion in new revenue to abet the governments spending addiction. More fuel should not be added to the fire."
Reach Eric Giunta at egiunta@sunshinestatenews.com and at (954) 235-9116.
