Supreme Court Decision Upholds Surtax on Investment Income

The Supreme Court's decision that the Affordable Care Act is largely constitutional also affirmed a 3.8% capital gains surtax for certain taxpayers. Assuming Congress extends the current rate of 15%, set to expire on December 31, the capital gains tax rate for some taxpayers will rise to 18.8%. The surtax will apply to couples with over $250,000 in adjusted gross income (AGI) and single filers with AGI over $200,000. If Congress does not extend the Bush-era tax cuts, the top capital gains rate for those taxpayers will rise to 23.8%. The Wall Street Journal called the surtax a "game changer for many taxpayers," observing that some people will have incentives to push future income into the 2012 tax year. The surtax would increase the value of the Section 1042 rollover, which allows sellers meeting certain conditions to defer capital gains tax on the sale of C corporation stock to ESOPs. It would also affect those receiving some forms of equity compensation. Medicare tax for these same taxpayers will also increase from 1.45% to 2.35%.