From 1 January 2013 Obamacare introduces 3.8% Medicare Tax on net investment income.

August 20, 2013by Frontier Group
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Being the lesser of i) net investment income or ii) the excess (if any) of the “modified adjusted gross income” (MAGI) over $250,000

Net investment income includes (a) capital gains (including gain on disposition of interests in partnerships or S corporations attributed to the entity’s non-business property), (b) income from partnerships, LLCs and S corporations if a taxpayer does not materially participate, (c) dividends, royalties, interest and rental income, and (d) gain from sale of residence exceeding the $500,000 exclusion for married filing joint ($250,000 exclusion for other individuals).

Thus, the 3.8% Medicare tax does not apply if the taxpayer’s MAGI does not exceed the threshold (e.g., $250,000 for married filing joint).

The 3.8% tax does not apply to (w) tax-exempt interest, (x) distributions from qualified retirement plan accounts, (y) self-employment income, and (z) tax-free build-up in certain life insurance plans.

Frontier Group