Medicare tax hikes: What the rich will pay

NEW YORK (CNNMoney.com) -- High-income households will be paying more into Medicare as a result of the new health reform law.

For starters, the Medicare payroll tax is going up for individuals making more than $200,000 in wages, and couples making more than $250,000.

Currently, the Medicare payroll tax is 2.9% on all wages -- with the worker and his employer each paying 1.45%.

Under the new law, starting in 2013, high-income individuals will pay another 0.9 percentage points on earned income over $200,000 ($250,000 if married).

A single person making $250,000 will pay an additional $450 a year into Medicare relative to what he pays today, according to calculations by Deloitte.

If he made $1 million, he will pay an additional $7,200.

Couples making $500,000 in wages will pay an additional $2,250. If they made $1 million, they would pay an additional $6,750.

In addition, high-income households would also be subject to a new 3.8% Medicare tax on investment income starting in 2013.

What qualifies as investment income, also known as "unearned income"? Capital gains, dividends, interest, annuities, royalties and rents are some examples. Any investment income that had previously been characterized as "tax exempt" would not be subject to the new tax, however.

Here's how the new tax on investment income would work: It will hit those people whose gross income (roughly speaking, wages plus investment income) exceeds the $200,000 threshold for individuals or $250,000 for couples.

But because of how the proposal is structured, you might not owe the 3.8% tax on all your investment income. Here's why: the tax would apply to whichever is less -- your investment income or the amount that your modified adjusted gross income (AGI) exceeds the high-income threshold.

Say you have $50,000 more in modified AGI than the threshold. If your investment income exceeds that amount, you would only owe the 3.8% tax on $50,000.

So how might a high-income person's tax bill change overall when the Medicare wage tax is increased and a new Medicare tax on investment income is also imposed? A single taxpayer making $1 million in wages and $100,000 in capital gains income would pay an additional $11,000 into Medicare than he does today, according to Deloitte.

Deloitte notes that it's possible that even if a person's total income exceeds the income threshold, he may only be subject to the Medicare investment tax but not the increase in the Medicare payroll tax.

Say a person makes $190,000 in wages and on top of that takes in $30,000 in investment income. That person would not be subject to the increased Medicare payroll tax because his wages fall below the threshold, but he would have to pay the new investment income tax because his total income exceeds the $200,000 threshold.

Raising the Medicare tax on wages will raise an estimated $87 billion over 10 years. But combined with a new Medicare tax on investment income, the revenue collected will jump to an estimated $210 billion, making it the biggest single revenue raiser to help pay for health reform.