Tuesday, July 31, 2012

The 3.8% tax myth is back

Things that your relatives' right-wing Midwestern friends send them in emails can be actively bad for democracy. Hence this public-service message:

The stretched-out-of-shape claim about a nationwide Medicare tax -- the one I collected and wrote up in May -- it's showing up all over again. The "Tax Adviser" Twitter feed notes the Journal of Accountancy, nudged by the National Association of Realtors, is debunking the very same rumor, explaining that rumors of a uniform 3.8% sales tax on real estate transactions are "largely a hoax."

The journal explains how the real 3.8% tax that is the rumor's small "kernel of truth" applies to certain investment income, which can include a sale of a personal residence, that yields profit (not proceeds but profit) above $250,000 for singles or $500,000 for couples. Even then it only applies to taxpayers who have modified adjusted gross incomes above $200,000 for single taxpayers or $125,000 per person for married taxpayers.

As the example in the article shows, really not a whopping tax, and then, not a tax on any kind of little guy. A couple with $325,000 modified adjusted gross income, who make $550,000 in profit on the sale of a house, would pay $1,900 in Medicare tax. Which seems only fair.

Here's another debunker, this one from the National Association of Realtors, dated November 2010 (via NJAR here).

But if you want scary, try this Twitter search on "Medicare tax" and see how many people are amplifying fears of a tax that will not affect most Americans ever. (A side issue raised there, e.g. by CCH Benefits Talk, is a separate real "additional Medicare tax" of 0.9% on incomes over $200,000 for singles or $125,000 per person for members of married couples. Here's an IRS Q&A on that. Again, not likely to affect most Americans.)

Seems clear enough that folks wouldn't repeat this "oppressive new tax" meme if they bothered to check it out. What's worth wondering is how many who repeat it bother to believe it.

[P.S. Usual disclaimer: this isn't advice, just general information, and I'm not an accountant, and you should check out your own situation with your own accountant.]

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