The Rangel Surtax

Rea Hederman / July 15, 2009

House Ways and Means Chairman Charlie Rangel announced that a surtax on individuals and families above a certain income level would be used to pay for health care reform. The surtax is 1% for joint filers over $350,000, 1.5% for joint filers over $500,000 and 5.4% for joint filers with over $1,000,000 in adjusted gross income ($280,000, $400,000, $800,000 for individuals respectively). The surtax would be increased if large cuts in health care do not materialize. The surtax is on adjusted gross income, so the surtax is applied before any deductions and applies equally to all forms of income such as wages, dividends, capital gains, etc.

This surtax will have a large impact on small businesses:

• Sixty percent of all returns affected by the surtax have small business or partnership income.
• Twenty percent of the returns affected by the surtax get over half their income from small business or partnership income. These tax payers pay one quarter of all income taxes subject to the surtax.
• With the scheduled expiration of President Bush’s tax cuts, the federal top marginal rate on small business earnings will be 48% and exceed 50% in most states. (more…)