Also called the unearned income Medicare contribution tax or the net investment income tax; this tax impacts more taxpayers than you might think. This tax applies to individuals, estates and trusts. You should note that this tax is a surtax so it is a second level of taxation in addition to the regular taxes that Americans have been paying.
The surtax is calculated as 3.8% of the lesser of your net investment income or the excess of the modified adjusted income over a threshold of $250,000 for joint filers and surviving spouses. ($125,000 for married folks filing separate returns and $200,000 in all other cases.) The surtax also applies to a trade or business in certain instances such as where there is passive activity or where a business sells financial instruments or commodities.
As the tax year draws to a close, taxpayers with income subject to the 3.8% should be attempting to minimize, through deferral, their net investment income or modified adjusted income. If you would like assistance with your year end tax saving strategy, please contact one of our attorneys at Ourednik Law Offices.