Wednesday, July 3, 2013

3.8% Medicare Tax on Investment Income

As part of the Health Care and Reconciliation Act of 2010, Congress has implemented a new 3.8% Medicare tax (effective January 1, 2013) on investment income, which can generally be defined as any income that is derived from investing capital.  It includes capital gains, rents, royalties, dividends, annuities, and interest income.  It does notinclude W-2 income or income derived from an active S-Corporation or partnership.  The sale of a qualified personal residence is only subject to this tax if the net gain is greater than $250K for taxpayers filing individually and $500K for married filing jointly.

This tax is only applicable to taxpayers with adjustable gross income (AGI) over $200K who file individually or $250K for married couples filing jointly.  For those who qualify to pay the tax, the amount of tax owed will be equal to 3.8% multiplied by the lesser of net investment income or the amount by which their AGI exceeds the $200K/$250K threshold.  For example, a married couple with a combined salary of $295K and investment income of $10K would be subject to an additional Medicare tax of $380.

While this definition is meant to give a basic understanding of the new tax, please contact us with any specific questions. 801.269.1818 

Written By: Dave Mantyla 

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