3.8 investment tax surcharge in obamacare


What is the 3.8 percent Obamacare tax?

The net investment income tax is a 3.8% surtax on a portion of your modified adjusted gross income (MAGI) over certain thresholds. 1 It hits high earners with significant investment income.

Who has to pay the 3.8 Obamacare tax?

If you’re single, you must pay the tax only if your adjusted gross income (AGI) is over $200,000. Married taxpayers filing jointly must have an AGI over $250,000 to be subject to the tax.

How is the 3.8 Obamacare tax calculated?

The 3.8% rate is applied to the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status.

What is the 3.8 Medicare surtax?

The new 3.8% Medicare surtax applies only to “high income” individuals, defined as those having Adjusted Gross Income (AGI) in excess of $200,000 (for individuals; $250,000 for married couples). (For any expatriates, AGI is modified by adding back any foreign earned income exclusion.)

What income is subject to the 3.8 Medicare tax?

You are only exposed to the new 3.8% Medicare tax if your modified adjusted gross income (MAGI) exceeds the applicable threshold of: $200,000 if you are unmarried, $250,000 if you are a married joint-filer or qualifying widow or widower, or $125,000 if you use married filing separate status.

Do I have to pay Medicare tax on capital gains?

If you make $250,000 a year, you’ll pay a 1.45% Medicare tax on the first $200,000, and 2.35% on the remaining $50,000. … That means the NIIT acts as either an extra income tax or an extra capital gains tax. You can report your net investment income on IRS Form 8690.

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What income is subject to NIIT?

The Net Investment Income Tax is based on the lesser of $70,000 (the amount that Taxpayer’s modified adjusted gross income exceeds the $200,000 threshold) or $90,000 (Taxpayer’s Net Investment Income). Taxpayer owes NIIT of $2,660 ($70,000 x 3.8%).

What income is not subject to Medicare tax?

Also, qualified retirement contributions, transportation expenses and educational assistance may be pretax deductions. Most of these benefits are exempt from Medicare tax, except for adoption assistance, retirement contributions, and life insurance premiums on coverage that exceeds $50,000.

How do you avoid net investment income tax?

Strategies to Reduce Your Modified Adjusted Gross Income:

  1. Invest more taxable investment funds in municipal bonds. …
  2. Invest taxable investment funds in growth stocks. …
  3. Consider conversion of traditional IRA accounts to ROTH accounts. …
  4. Invest in life insurance and tax-deferred annuity products. …
  5. Invest in rental real estate.

Does Obamacare tax apply to capital gains?

Income Tax Raised

You may also pay Obamacare taxes if you sell your home for a profit. People who sell their main home that they’ve owned and lived in for at least five years can exclude up to $250,000 of gain ($500,000 if married filing a joint return).

What is not included in net investment income?

Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income. … If an individual owes the net investment income tax, the individual must file Form 8960.

Do I need to file Form 8960?

When to file Form 8960

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If it turns out that your net investment income is zero or less, you don’t need to file the form with your taxes. … You then enter your NIIT liability on the appropriate line of your tax form, and file Form 8960 with your return.

Do Trusts pay the 3.8 Medicare tax?

The Supreme Court’s decision upholding the Affordable Care Act confirmed that trusts and estates will be subject to a new 3.8% Medicare surtax when net investment income exceeds a threshold amount.

What is the threshold for Medicare surcharge?

Surcharges are imposed on beneficiaries with higher income: single taxpayers with modified adjusted gross income (MAGI) in excess of $85,000 and married couples with MAGI greater than $170,000.

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