There are two false tax rumors that have been circulating around and troubling clients. To set the record straight, a brief explanation of both rumors is provided below.
False Rumor #1 – “Employer-paid health insurance benefits will be taxable in 2011.”
Not true! Starting in 2011, the amount of employer-paid healthcare benefits was to be included on the W-2 as an information entry, but is not included in the taxable wages on the W-2. Many sources failed to properly analyze this requirement and reported that the benefits would become taxable in 2011.
False Rumor #2 – “Home sales will be subject to a sales tax.”
Not true! This rumor came about because of a 3.8% surtax, beginning in 2013, on net investment income of higher-income taxpayers – generally those with an AGI in excess of $200,000 ($250,000 for married taxpayers filing jointly).
Generally, investment income is, as the name implies, income from investments (such as interest, dividends and capital gains). Net investment income is investment income less certain deductible investment expenses.
Gain from the sale of a home is a capital gain and included in net investment income and, as a result, could be subject to the 3.8% surtax on the profit but not the sales price. In addition, for a home used by a taxpayer for 2 of the prior 5 years preceding the sale, the taxpayer can exclude up to $250,000 ($500,000 for a qualifying married couple) of the gain from the sale. Thus, only the excess above the home gain exclusion would be subject to the surtax.
Bottom line, you could get hit by this surtax if your home sale profits exceed the exclusion and you are a higher-income taxpayer – but it is not a sales tax based on the sales price of the home.
If you have any questions, please give this office a call.
Steve Trojan, CPA is owner of SMT & Associates, Inc. (www.smt-associates.com), a Crystal Lake IL based tax and accounting firm, and Complete Payroll Inc, (www.completepayrollinc.com) a payroll processing firm. He specializes in tax and accounting issues affecting small business owners.