The Patient Protection and Affordable Care Act (a/k/a "Obamacare") which was signed into law on March 23, 2010 will slap a 3.8% tax on payouts from annuities that high-income earners purchase outside of their workplace. High income earners are defined a single taxpayers earning in excess of $200,000 and married taxpayers earning over $250,000.
The Obamacare tax will be applied to annuity distributions, interest , dividends, capital gains, rents and royalties begining in 2013.
Opponents of the tax on annuity payouts say that the approach is inconsistent with how the Obama administration has taken steps to promote annuities such as it did in its Middle Class Task Force blog on January 25, 2010.
A number of settlement planners may recommend supplementing structured settlements with deferred annuities purchased with income tax free dollars from the up front cash lump sum in their personal injury settlements.
While structured settlement income is income tax free since when it for payment of damages for physical injury, physical sickness or workers compensation, it is unclear whether or not such income counts towards the $200,000 or $250,000 triggers cited in the first paragraph above. The same question has been asked of retirement annuities in qualified plans which are exempt from the new payout tax but the annuity income amount may count towards the trigger.
Obviously this settlement planning issue applies to the larger multi million dollar settlements and the new tax applies to other investment choices as well.