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- Written by: Dennis Fordham
On Jan. 1, 2013, the 3.8 percent Medicare surtax, passed by Congress in 2010 to help pay for Obamacare, takes effect.
The 3.8 percent surtax is in addition to any income tax owed and applies to both individuals and trusts and estates.
Let us examine how the 3.8 percent surtax will apply in 2013 to individuals and to those trusts and estates which are required to file income tax returns.
With individual taxpayers the 3.8 percent Medicare surtax applies to the lesser of the taxpayer’s “Net Investment Income” or the excess of the taxpayer’s “Modified Adjusted Gross Income” (MAGI) over the applicable threshold: $125,000 (married filing separately), $250,000 (married filing jointly and qualified widowers), or $200,000 (single filers).
Thus, the amount by which MAGI exceeds the applicable threshold limits how much of the net investment income is subject to the surtax.
With taxable estates or trusts, however, the surtax applies to the lesser of its “Undistributed Net Investment Income” or the excess of an estate’s or trust’s “Adjusted Gross Income” (AGI) above $11,650.
Thus, the amount by which AGI exceeds $11,650 limits how much of the net investment income is subject to the surtax.
Trusts and estates with an AGI above $11,650 also pay the highest tax rates on their excess income (39.6 percent in 2013).
By contrast, individuals do not reach the highest income tax bracket until they earn above $300,000. Accordingly, trustees often distribute out any otherwise taxable trust income to their beneficiaries, who typically are in lower tax brackets.
The surtax applies to bypass trusts, marital trusts, and to third party special needs trust for the benefit of persons with special needs receiving needs based benefits (e.g., SSI and/or Medi-Cal). It does not apply to revocable living trusts, to charitable remainder trusts, or to self-settled (first party) special needs trusts.
For example, consider a third party special needs trust established at the death of a parent for the benefit of a surviving child with special needs.
Because this special needs trust is a third party special needs trust (and not a self settled first party special needs trust) it is required to file its own income tax returns.
Let us say that this special needs trust has $15,000 in adjusted gross income, of which $5,000 is taxable net investment income and the rest is exempt municipal bond interest.
In this case, $3,350 of the $5,000 net investment income would be subject to the 3.8 percent surtax because the trust’s AGI exceeds $11,650 by $3,350 which is the lesser amount (the ceiling). Here the 3.8 percent surtax owed is only $127. The trust’s income tax owed on the same $3,350 is $1,327.
What is Net Investment Income? It is interest, dividends, royalties, rents, unless derived in the ordinary course of a trade or business.
The surtax excludes retirement income from IRA and 401(k) distributions, which are still subject to income tax.
Thus, if a trust or estate is the beneficiary of an IRA or 401(k) plan, then the trust’s receipt of such retirement distributions are excluded from the 3.8 percent Medicare surtax, which is still subject to income tax (a good reason to distribute to the beneficiary).
This may happen when a special needs trust is named as the plan participant’s death beneficiary in order to preserve SSI and Medi-Cal eligibility of a person with special needs.
Where the trustee can either distribute out the trust’s net investment income and/or otherwise invest in non taxable assets the surtax can be reduced.
The trustee’s ability to distribute out net investment income will be affected by the terms of the trust and California law.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at
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- Written by: Ellen Gray
An oversized semi-trailer truck carrying NASA’s Landsat Data Continuity Mission (LDCM) arrived earlier this month at its launch site at Vandenberg Air Force Base in California in preparation for launch.
This NASA and U.S. Geological Survey mission will continue a 40-year record of measuring change on the planet from space.
LDCM is the eighth satellite in the Landsat series, which began in 1972. It will extend and expand global land observations that are critical in many sectors, including energy and water management, forest monitoring, human and environmental health, urban planning, disaster recovery and agriculture.
Following final tests, the LDCM satellite will be attached to an Atlas V rocket and launched into space February 11, 2013. Built and tested by Orbital Science Corp., LDCM left their Gilbert, Ariz. Facility on Dec. 17.
“LDCM builds on and strengthens a key American resource: a decades-long, unbroken Landsat-gathered record of our planet’s natural resources, particularly its food, water and forests,” said Jim Irons, Landsat project scientist at NASA’s Goddard Space Flight Center in Greenbelt, Md.
LDCM carries two instruments, the Operational Land Imager (OLI) built by Ball Aerospace & Technologies Corp. in Boulder, Colo., and the Thermal Infrared Sensor (TIRS) built by NASA Goddard
“Both of these instruments have evolutionary advances that make them the most advanced Landsat instruments to date and are designed to improve performance and reliability to improve observations of the global land surface,” said Ken Schwer, LDCM project manager at NASA Goddard.
OLI will continue observations in the visible, near infrared, and shortwave infrared portions of the electromagnetic spectrum and includes two new spectral bands, one of which is designed to support monitoring of coastal waters and the other to detect previously hard to see cirrus clouds that can otherwise unknowingly impact the signal from the Earth surface in the other spectral bands.
TIRS will collect data in two thermal bands and will thus be able to measure the temperature of the Earth’s surface, a measurement that’s vital to monitoring water consumption, especially in the arid western United States.
NASA and the U.S. Department of the Interior through the U.S. Geological Survey (USGS) jointly manage the Landsat program.
After launch and the initial check out phase, USGS will take operational control of the satellite, will collect, archive, and distribute the data from OLI and TIRS, and will rename the satellite as Landsat 8. The LDCM data will be freely and openly available through the USGS data system.
NASA’s Launch Services Program at Kennedy is responsible for launch management. United Launch Alliance is the provider of the Atlas V launch service.
For more information, visit http://www.nasa.gov/Landsat .
Ellen Gray works for NASA’s Goddard Space Flight Center in Greenbelt, Md.
Federal unemployment benefit extensions set to end; hundreds of Lake County residents to be impacted
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- Written by: Elizabeth Larson
LAKE COUNTY, Calif. – Hundreds of thousands of Californians – including several hundred Lake County residents – are set to lose federal unemployment benefit extensions within days unless the president and Congress take action.
California Employment Development Department confirmed to Lake County News that the federal benefits are set to come to an abrupt halt by the end of this week for some 346,000 Californians, with no action yet taken by President Barack Obama or Congress on this aspect of the “fiscal cliff.”
Approximately 755 Lake County residents will be affected by the ending of the federal benefit extensions, the Employment Development Department reported.
Those benefits for the federal Emergency Unemployment Compensation program are not the same as the regular state unemployment insurance payments, which will continue and are not affected by the federal stalemate, the agency said.
The most recent numbers available, for this past October, showed that 1,556 Lake County residents were certified for state unemployment benefits, which will not be interrupted.
Earlier this month, the Employment Development Department sent letters notifying the recipients of the federal benefit extensions about the end to the program, which won’t continue payments even if recipients still have an existing balance due them. Those letters also advised of alternative assistance programs.
In July 2008, as the impacts of the recession were beginning to be felt, the first tier of the federal unemployment benefit extensions became available for Californians, the Employment Development Department reported.
State and federal benefits combined could, at one point, provide up to 99 weeks of benefits. The Employment Development Department said that was reduced to 73 weeks this past September.
The state said $40 billion in federal benefit extensions have been paid to out-of-work Californians in the four and a half years since the federal program started.
The Employment Development Department said more than 928,000 unemployed Californians have exhausted all available benefits on the state and federal levels.
The Employment Development Department urged those affected to monitor its Web site, www.edd.ca.gov , or its Twitter account, www.twitter.com/CA_EDD , for updates.
Email Elizabeth Larson at
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- Written by: Elizabeth Larson
LAKE COUNTY, Calif. – California’s and the nation’s November employment numbers continued to show improvement, while Lake County’s showed a slight slip based on reduced seasonal employment.
The California Employment Development Department’s latest report said the state had a 9.8 percent unemployment rate last month, the lowest seasonally adjusted rate since January 2009.
California’s unemployment in November was down from the 10.1 percent rate reported in October, and a year-over improvement from the November 2011 rate of 11.3 percent, the state reported. The unemployment rate is derived from a federal survey of 5,500 California households.
In November, California’s nonfarm payroll jobs decreased by 3,800 for a total gain of 564,100 jobs since the recovery began in February 2010, according to the Employment Development Department’s report, which is based on data from two separate surveys.
Lake County’s unemployment was calculated at 14.5 percent in November, up from 13.8 percent in October but an improvement from November 2011’s 15.8 percent rate, according to Employment Development Department data. The county was ranked No. 51 among the state’s 58 counties for its November rate.
The national unemployment rate reached a near four-year low last month. The Bureau of Labor Statistics reported that nationwide unemployment last month was 7.7 percent, the lowest rate since the 7.3 percent registered in December 2008.
Dennis Mullins of the Employment Development Department’s North Coast Region Labor Market Information Division reported that Lake County’s wage and salary employment decreased 610 jobs between October and November, primarily as a result of the farming sector’s seasonal job cutbacks, totaling 520 less jobs.
He said Lake County was down 100 jobs for the year over with five industry sectors gaining or unchanged and six declining.
Mullins said year-over job growth occurred in private educational & health services, 10; other services, 10; and government, 10.
Industry sectors with no change over the year were information and financial activities, Mullins reported.
The county’s industry sectors showing decline included farm, -10; mining, logging and construction, -10; manufacturing, -10; trade, transportation and utilities, -10; professional and business services, -10; and leisure and hospitality, -90.
Lake’s neighbors had the following rates and ranks: Colusa, 18.2 percent, No. 57; Glenn, 12.4 percent, No. 38; Mendocino, 9.1 percent, No. 17; Napa, 7.5 percent, No. 7; Sonoma, 7.7 percent, No. 8; Yolo, 10.7 percent, No. 28.
Marin once again remained at the No. 1 spot for the lowest unemployment, 5.8 percent, with Imperial coming in at No. 58 for its 26.6 percent rate, according to the report.
The Employment Development Department said there were 391,870 people receiving regular unemployment insurance benefits during the November survey week, compared with 453,448 in October and 536,294 in November 2011.
At the same time, new claims for unemployment insurance were 39,879 in November, compared with 55,543 in October and 74,082 in November 2011, the agency said.
State, federal surveys show differences
Nonfarm jobs in California totaled 14,406,400 in November, a decrease of 3,800 jobs over the month, according to a survey of 42,000 businesses that is larger and less variable statistically than the federal survey of households used to derive the unemployment rate.
That state business survey, used to measure jobs in the economy, showed a year-over-year increase – November 2011 to November 2012 – of 268,600 jobs, an increase of 1.9 percent.
The federal survey of households, done with a smaller sample than the survey of employers, showed an increase in the number of employed people, the Employment Development Department said.
The household survey estimated the number of Californians holding jobs in November was 16,589,000, an increase of 78,000 from October, and up 223,000 from the employment total in November of last year.
The Employment Development Department’s report on payroll employment (wage and salary jobs) in the nonfarm industries of California totaled 14,406,400 in November, a net loss of 3,800 jobs since the October survey, following a gain of 38,800 jobs, as revised, in October.
The report said five categories – construction; trade, transportation and utilities; information; financial activities; and leisure and hospitality – added jobs over the month, gaining 27,600 jobs. Trade, transportation and utilities posted the largest increase over the month, adding 12,900 jobs.
Five other categories – manufacturing; professional and business services; educational and health services; other services; and government – reported job declines over the month, down 31,400 jobs, the report showed.
The Employment Development Department said educational and health services posted the largest decrease over the month, down 11,000 jobs. One category, mining and logging, was unchanged over the month.
In the report’s year-over-year comparison – November 2011 to November 2012 – nonfarm payroll employment in California increased by 268,600 jobs, a 1.9-percent increase.
Seven categories – construction; trade, transportation and utilities; information; financial activities; professional and business services; educational and health services; and leisure and hospitality – posted job gains over the year, adding 320,000 jobs, according to the report.
The Employment Development Department said professional and business services posted the largest gains on a numerical basis, adding 74,100 jobs, a 3.4-percent increase. Information posted the largest gains on a percentage basis, up 5.9 percent, adding 26,000 jobs.
The report said four categories – mining and logging; manufacturing; other services; and government-- posted job declines over the year, down 51,400 jobs.
Government posted the largest decline on both a numerical and percentage basis; it was down by 34,500 jobs, a 1.4-percent decrease, the agency said.
Email Elizabeth Larson at