News & Announcements

3.8% Medicare Tax on Unearned Income

January 9, 2013

Congress added this provision of the Health Care and Education Reconciliation Act of 2010 as a means of raising revenue to pay for health care reform.

Individuals
The 3.8% Medicare contribution tax on unearned income will apply to married taxpayers with modified adjusted gross income (adding back foreign earned income and housing exclusions) in excess of $250,000 ($125,000 if filing a separate return), and $200,000 for single taxpayers. The tax is assessed on the lesser of the taxpayer’s net investment income or the amount by which the taxpayer’s income exceeds the above thresholds.

Estates and Trusts
This tax is assessed on estates and certain trusts on the lesser of undistributed net investment income or the excess of adjusted gross income over the highest bracket for the year (currently $11,650).

Net Investment Income
Net investment income includes such items as interest, dividends, annuities, royalties, rents, passive income, net gains on the disposition of non-business property, and taxable gain on the sale of personal residence in excess of the Section 121 exclusion, just to name a few.

This tax does not apply to non-resident aliens, or trusts exempt from tax under Section 501, or charitable remainder trusts exempt from tax under Section 664, or trusts in which all of the unexpired interests are devoted to charitable purposes under Section 170.

 

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