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

August 20, 2013by Frontier Group

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