Has your firm or company paid severance pay to employees since 2006?  If so, contact our offices to learn how you may be eligible to receive a rebate on FICA taxes you paid.  Contact Irwin D. Zucker at

(210) 349-6484 for more information.

Some interesting facts concerning the Healthcare Reform Revenue-Raising Provision.

1. Broadened Medicare Hospital Insurance Tax Base of “High-Income Taxpayers”.

 Currently taxpayers are subject to a 1.45% medicare tax on their employment income and the employer matches resulting in a 2.9% tax.  The Act increases the employee portion by .9% of covered compensation (which, by the way, may be greater than taxable income) in excess of $250,000 for married filing jointly ($125,000 for married filing separately) and $200,000 for all others.  The high income (HI) tax rate for the employee will now be a total of 3.8% on this income with the employee paying 2.35% or a 62% increase on “excess income”.  The rub is that both spouses’ incomes are added together, so even if both spouses individually do not meet the test, together they may and since the “extra” amount was not withheld during the year, quarterly payments may be necessary.  Even if the couple overpays their taxes so they normally receive a refund, their final tax figure will be higher.

 WHAT TO DO:  Keep a close watch on your income and the income of your spouse or penalties can and will be assessed for underpayments!

2. Unearned/Investment Income (Including Capital Gains) Medicare Contribution of High-Income Taxpayers.

The Act now imposes a 3.8% unearned income medicare contribution tax on the lesser of (1) net investment income or (ii) the excess of modified adjusted gross income over the threshold amount (modified adjusted gross income – not taxable income).  Again the threshold is $250,000 for joint returns, $125,000 for married filing separate returns and $200,000 for all others.

 Estate and trusts are also subject to this tax over $11,150 of adjusted gross income.

 Remember, investment income includes capital gains.

 WHAT TO DO:  If you are selling your business, liquidating investment assets or just doing some planning, talk to your tax professional before not after the transaction.

3. Codification of Economic Substance Doctrine.

This doctrine was codified and provides a uniform definition of economic substance.  The transaction must change in a meaningful way (apart from federal income tax effects) the taxpayer’s economic position and the taxpayer must have a substantial non-federal income tax purpose for entering into the transaction.

To determine a profit motive, the present value of the pre-tax profit must be substantial in relation to the expected net tax benefit.

The Act imposes a new strict liability penalty (20% increased to 40% if inadequate disclosure) for underpayment attributable to disallowance by reason of lack of economic substance.  No exceptions, including reasonable cause, are available and tax opinions do not help.

Now, which side do you think the IRS will come down on?  Since it is a factual issue, who do you believe the tax court will believe?

WHAT TO DO:  Again, talk to your tax professional BEFORE the transaction and DOCUMENT, DOCUMENT, DOCUMENT.