"Health Help" Tax Could Take a Bite Out of Higher CD Rates

Savings investors who are patiently awaiting the time of higher CD rates got a bit of bad news last month:

The new health reform plan includes an extra 3.8 percent tax on "unearned income" for individuals and couples making more than $200,000 in total income for the year.

This new tax is intended to shore up the finances of Medicare.

Unearned income would include income earned (or unearned, if you prefer) from CDs. There's an argument to be made that 3.8 percent extra isn't going to kill someone making $200,000 or more per year, but there's also an argument to be made that CD investors are going to hate this new tax.

Remember, too, that the marginal tax rates of the high earners in our society are set to rise by 4 percent starting in 2011, so this 3.8 percent would be on top of that.

If you have $1,000 in CD interest income for the year, then, and are in the affected group, you'll be paying $434 income tax on that income--

Plus state income tax, which can amount to another 10 percent in high tax states like New York and California.

Higher CD rates, in other words, when at last they come, will mean a little bit less for the high income among us.

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