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IRS Issues Proposed Rules For Two 'Obamacare' Taxes

Tuesday, December 11, 2012

The United States Treasury Department and the Internal Revenue Service (IRS) have issued two further proposed regulations on taxes - the Net Investment Income Tax and the Additional Medicare Tax - that will be imposed in 2013 as a result of President Barack Obama’s Affordable Care Act (ACA) of 2010.

The 3.8% Net Investment Tax will be imposed against individuals, estates and trusts on their investment income, and the 0.9% Additional Medicare Tax applies to an individual’s wages and self-employment income, that exceed threshold amounts.

The two new taxes are two of the ACA’s 47 tax or tax-related provisions, some of which are already in effect. Other provisions include individual mandate and employer mandate taxes, restrictions on the use of Flexible Spending Arrangements and Health Savings Accounts, the new tax on medical devices, the health insurance premium subsidy and new requirements for tax-exempt hospitals and group health insurance plans.

The IRS has confirmed that the Net Investment Income Tax, or Medicare contribution tax, will apply to individuals, estates and trusts that have investment income above certain threshold amounts, from January 1, 2013.

The threshold amount for individuals is USD250,000 for married taxpayers filing jointly, USD125,000 for married taxpayers filing separately, and USD200,000 for single taxpayers, and will not be indexed for inflation. The tax will not affect income tax returns for the 2012 taxable year that will be filed in 2013, and will not be payable by non-resident aliens.

Estates and trusts will be subject to the Net Investment Income Tax if they have undistributed net investment income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for the taxable year. For tax year 2012, the threshold amount was USD11,650. There are special rules for certain types of trusts, such as charitable remainder trusts and small business trusts.

In general, investment income includes, but is not limited to, interest, dividends, net capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in the trading of financial instruments or commodities, reduced by certain expenses allocable to that income.

The Net Investment Income Tax is subject to the estimated tax provisions. Individuals, estates and trusts that expect to be subject to the tax in 2013 or thereafter should adjust their income tax withholding or estimated payments to account for the tax increase in order to avoid underpayment penalties.

With regard to married and single individual taxpayers, the Additional Medicare Tax’s threshold amounts are the same as for the Net Investment Income Tax. However, an employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee, if that individual has a wage in excess ofUSD200,000 in a calendar year.

Calculating wages for the purposes of withholding Additional Medicare Tax is no different than calculating wages for federal income tax generally, and the proposed regulations provide guidance for employers and individuals relating to implementation of the new tax, including the requirement to withhold it, the requirement to file a reporting return, the employer process for adjusting any underpayments and overpayments, and the employer and employee processes for filing a claim for refund.

The IRS has stated that it intends to finalize both of the regulations in 2013 and that taxpayers may rely on these proposed regulations for tax periods beginning before the date that the final regulations are published.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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