Investing 
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3.8% “Unearned” Investment Income Medicare Tax

I’m a big fan of dividends because of the favorable tax treatment so this article on Smart Money about the impending spike in tax rates on dividends caught my eye. It’s a little sensationalist in the sense that the cited increased rate, 43.4%, applies mostly to “high income” individuals in the highest tax bracket and subject to the new 3.8% “Unearned” Investment Income Tax, established by the health care reform law.

If you aren’t interest in gory details, basically it’s a 3.8% on unearned income for single filers whose AGI exceeds $200,000 ($250,000 for married filing jointly) starting in 2013 and it’ll be used to help fund Medicare. If you’re like me and want to see the details, here they are:

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 NEWS 
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Social Security Cost of Living Adjustment for 2012 – 3.6%

On several occasions, when playing golf with my good friend and his dad, the dad has joked about how he hasn’t gotten a raise in three years. He’s semi-retired and is getting Social Security payments and his “I haven’t gotten a raise” joke is in reference to how Social Security hasn’t gotten a cost of living adjustment (COLA) in three years. The last time there was a COLA for Social Security was back in 2009, when it was increased 5.8%. The SS COLA is supposed to adjust benefits so they keep on pace with inflation, which seems like a very sensible thing to do, but official inflation figures (CPI-W is used for SS COLA) has been low these past few years and a 3rd quarter spike in inflation in 2008 (resulting in that 5.8% increase for 2009) gave the COLA a ton of ground to cover, so there has been no adjustment these past few years.

Well, the wait is over, the cost of living adjustment for Social Security will be 3.6% starting in January 2012. That’s the good news. The bad news is that the premiums retirees are expected to pay for Medicare Part B is probably going to go up, thus taking a piece of that COLA bump. That won’t be announced for another month though.

Medicare will cut Social Security’s “raise” in 2012 [Reuters Money]


 Taxes 
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Understanding How Income Is Taxed

Taxes!Remember when Warren Buffett famously declared that he paid a lower tax rate than his administrative assistant? It probably confused a lot of people who aren’t familiar with the myriad of ways our income is taxed and that confusion can lead to misplaced frustration and anger. With how charged politics can be, it’s not uncommon for people to get really passionate and fired up over things that they’ve misunderstood.

A prime example, outside of money and politics, is the issue of vaccines and autism. The link between the two was based heavily on the fraudulent work of Dr. Andrew Wakefield in what has now been declared an “elaborate fraud.” Yet autism is a very real problem, one whose cause is still unknown, and people still insist on not vaccinating their children. While I think I have a right to tell people what to do, the fact that this vehement rejection of vaccines is based mostly on a fraud is just one example of this.

So today, I hope to explain how our income is taxed and hopefully that will remove some of the existing, incorrect, ideas some people have about our tax structure.

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 Your Take 
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Your Take: Health Care Reform Bill

You knew this was coming. :)

On Sunday, the House passed H.R. 3590, the Senate version of the health care bill, along with another bill (H.R. 4872 Reconciliation Act of 2010) to reconcile differences. HR 3590 was signed into law on Tuesday and the reconciliation bill, which the Senate passed yesterday.

Overall my feelings on the bill are mixed but mostly positive. I like the reform elements like preventing rescission and excluding children for coverage for pre-existing conditions. I love that we are moving a little towards preventative care versus prescriptive care, I’d like to see more of that. I’m a little mixed at some of the small business elements where employers are forced to buy insurance, but I think they are palatable because they don’t take into effect unless you have over 50 employees. I’m indifferent to the various Medicare and Medicaid elements that affect doctor payments because I am unfamiliar with how the system actually words (vs. on paper).
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 NEWS 
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House Passes Health Care Reform H.R. 3590 Patient Protection and Affordable Care Act

As you’ve no doubt heard, last night the House of Representatives passed H.R. 3590 Patient Protection and Affordable Care Act in a vote of 219-212. 3590 then heads to President Obama’s desk for his signature into law. The House also passed HR 4872 Reconciliation Act of 2010, which now heads to the Senate for a vote, needing only a simple majority. Regardless of how you feel about health care reform in general and the bill specifically, it’s important to understand what’s inside because it will affect you and your family.

Fortunately, we can rely on a straightforward recap by Reuters plus a few details from the Tax Foundation. There will be no commentary on my part to get in the way of the facts, just what’s in the bill if it’s signed by law.

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 Government 
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How to Read Your Social Security Statement

If you have a job, you’re paying into the Social Security program. Social Security, or more officially and appropriately, the Old age, survivors, and disability insurance program (OASDI); is more than just a check when you retire or a payroll deduction on your pay stub. In addition to the “old age” portion, it is also a disability insurance program that provides for individuals who are unable to work because of a disability.

Each month, you pay 6.2% of your paycheck into the OASDI program, up to a limit of $6,621.60 a year (the tax is only on the first $106,800 of earnings). Three months before your birthday, you will receive a Social Security Statement. This post will explain how to read and review that Social Security statement.

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 Government 
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Medicare & Medicaid Health Insurance Programs Explained

I’ve never had the need or the opportunity the learn about Medicare or Medicaid, two government programs that garner a lot of attention every two years, and that have recently been in the news because of President Obama’s attempts to bring about health care reform. Like many people, I didn’t understand how either program worked so I decided to do some research and put together this Foundation post.

The biggest difference between the two is eligibility based on financial need. Medicaid is designed to help low-income, financially needy individuals and is administered differently in each state. Medicare is not based on need and is entitlement based, through your payments into the program through your taxes. Medicare is administered nationally and the rules are the same everywhere.

If you’re curious to learn more, read on plucky adventurer because it starts getting a little more complicated. :)

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