Beginning in 2013 the new 3.8% Medicare Tax will apply to certain individuals, estates and trusts. The new tax will apply to “net investment income” which includes: capital gains, interest, dividends, and other gross income from trades or businesses that are passive activities. Note that gross income from active activities, tax-exempt income and distributions from retirement plans* are excluded from this tax.
For individuals, the additional 3.8% tax applies to the lesser of:
- Net invesment income -OR-
- Modified Adjusted Gross Income (AGI) in excess of $250,000 if married filing jointly or $200,000 if unmarried
For trusts, the tax applies to the lesser of:
- Undistibuted net investment income -OR-
- Adjusted Gross Income (AGI) in excess of $11,950
*NOTE: Even though the 3.8% Medicare Tax does not apply to retirement plan distributions, it’s possible that the distributions may increase your AGI enough to subject you to the 3.8% Medicare Tax on your net investment income. If you are retired and taking distributions from your portfolio, we can help you determine the most tax-efficient way to use your portfolio. Contact Us to learn more.
