Tax Topic

Net investment Income Tax, 3.8%

Starting in 2013, some taxpayers are subject to a new tax that came into being with the Affordable Care Act. The new tax is 3.8% of the lesser of Net Investment Income or the excess of modified Adjusted Gross Income over threshold amounts (MFJ, $250,000; Single, $200,000). Net Investment Income consists of interest, ordinary dividends, royalties, rents, capital gains, etc.

Note that distributions from retirement plans and IRAs are not considered Net Investment Income, nor is ordinary income from an investment in an SCorp or LLC if the taxpayer is actively involved in the business.

Here is a link to the IRS website for full details on Net Investment Income: http://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-FAQs


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