Investment Updates
Who's Going To Pay The 3.8% Medicare Surtax?
Published Thursday, September 13, 2012 at: 7:00 AM EDT
Unless you've been stranded on a desert island, you've probably heard about the 3.8% Medicare surtax that went into effect in 2013. This provision was included in the controversial health-care law—the Patient Protection and Affordable Care Act of 2010—upheld by the U.S. Supreme Court. It's the law of the land unless it is changed by Congress.
How does it work? You must use a two-part test when you complete your tax return. The 3.8% Medicare surtax applies to the lesser of (1) “net investment income” or (2) the amount by which your modified adjusted gross income (MAGI) exceeds a threshold amount. Net investment income includes interest, dividends, royalties, rents, gains from selling property (other than property held in an active trade or business), and income from passive activities, but not tax-exempt interest or distributions from IRAs and qualified retirement plans.
For single tax filers, the threshold is $200,000; for joint filers, it’s $250,000. The way the law is applied might result in an unexpected tax for some individuals, while others could escape unscathed. Here are six simplified examples:
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