What’s in a Name???

12/17/2012

Shakespeare's Juliet once said "What's in a name? That which we call a rose by any other name would smell as sweet." The sentiment, of course, is that Romeo's last name shouldn’t matter – what we call something doesn’t change what it is. Shakespeare may or may not have been right about love and roses, but what about taxes? It seems the government might disagree with Juliet, if its history of using euphemisms such as “fees,” “contributions,” and “penalties” is any indication.  

In 1952, the IRS started charging "user fees" for special benefits given to someone beyond those given to the general public. Today the government raises over $200 billion per year in fees for services like approving retirement plan applications, driving heavy vehicles, entering national parks, and even walking to the top of the Statue of Liberty. But "user fees" are still "fees," and Americans seem to have figured out that trick. So, what now?  

Now we're seeing more names for what most of us would consider plain old taxes. For example, the new "unearned income Medicare contribution" goes into effect on January 1, and  is a 3.8% levy on investment income for individuals earning over $200,000 or joint filers earning over $250,000. Congress created it as part of the Affordable Care Act, along with an increase in the Medicare tax on earned incomes over those same thresholds. But, while they call it a "Medicare contribution," the money doesn't actually go into the Medicare trust fund. It goes straight into the general revenue fund and can be used for anything.  

The "unearned income Medicare contribution" isn't the only euphemism for "tax." Beginning on January 1, 2014, applicable large employers with 50 or more employees have to offer their employees minimum essential coverage or pay a $2,000/employee "assessable payment,” which is nondeductible. There are also taxes in disguise that have the same bottom-line effect as more direct taxes. If you start taking Social Security benefits before your normal retirement age and earn more than the retirement earnings test exempt amount, you'll pay a Social Security earnings penalty of one dollar for every two dollars you earn above that limit.  

The fact is, taxes are complicated, and these additional financial obligations to the government can make things even more complicated. It can be hard to know which of these cleverly named items apply to you and where to begin. As the 2013 tax season is fast approaching, it is essential to plan ahead and prepare yourself as much as you can to meet your tax obligations!