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Health Reform Bill Contains Tax on Annuities

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Raise your hand if you knew that health care reform would result in a new tax on annuities.

Despite protests from insurance groups, the health care reconciliation act will in fact add a new 3.8% tax on annuity income for married individuals filing a joint return and surviving spouses with taxable income of at least $250,000; married taxpayers filing separately with an income of $125,000; and other individuals with an income of $200,000.

Several insurance groups issued a last-minute appeal in a letter to legislators on Wednesday to exempt annuities from the new tax, citing the important growing role annuities are playing in securing retirement. But annuities remained in the reconciliation bill the Senate and House passed and sent to President Barack Obama to sign. The Congressional Budget Office estimated the overall tax on investment income will generate $210 billion over 10 years to pay for Medicare.

Click Here for more information on the new annuity tax.

Expand Your Knowledge: Are Deferred Annuities Suitable for Clients Over 80?

Who Does the Tax Apply to?

The 3.8 percent tax applies to investment income for:

  • Married individuals filing a joint return and surviving spouses with taxable income of at least $250,000.
  • married taxpayers filing separately with an income of $125,000.
  • Individuals with an income of $200,000.

What Does This Mean?

It's too early to tell what this means for agents and their clients. Will it dissuade people from buying annuities? Possibly, which is interesting considering the Obama administration has been touting annuities recently as a valuable retirement income vehicle.

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