Investment Updates
Defining Key Terms For The 3.8% Medicare Surtax
Published Monday, August 27, 2012 at: 7:00 AM EDT
Many investors already know about the 3.8% Medicare surtax lurking in the near future. Depending on your situation, you may have to pay an extra tax on some or all of your investment income, on top of the regular federal and state income taxes you owe. If you’re in the top tax bracket—currently 39.6%—you could end up paying tax at an effective top rate of 43.4%!
The calculation for the surtax involves a two-part process you must go through when you file your tax return. The 3.8% Medicare tax applies to the lesser of (1) “net investment income” and (2) the amount by which your modified adjusted gross income (MAGI) exceeds an annual threshold amount. The surtax is imposed on trusts and estates as well as on individual taxpayers.
With valuable tax dollars at stake, it’s important to understand all the rules. Here’s a quick overview of three key terms:
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