At what income does the 3.8 surtax kick in? (2024)

At what income does the 3.8 surtax kick in?

A Medicare surtax of 3.8% is charged on the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over a set threshold amount. The threshold is $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all other filers.

What does 3.8% Medicare surtax apply to?

What is the 3.8% “MEDICARE TAX” or NET INVESTMENT INCOME TAX (“NIIT”)? Many investors selling real estate or other high value investments are often surprised to find out that their tax liability could be subject to an extra 3.8% surtax in addition to the applicable short-term or long-term capital gains tax rates.

Which income is subject to the 3.8% net investment income tax?

Those who are subject to the tax will pay 3.8 percent on the lesser of the following: their net investment income or the amount by which their modified adjusted gross income (MAGI) extends beyond their specific income threshold. Net investment income typically includes the following: interest. dividends.

How is the 3.8 Obamacare tax calculated?

Effective Jan. 1, 2013, individual taxpayers are liable for a 3.8 percent Net Investment Income Tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount based on their filing status.

At what income does the Medicare surcharge kick in?

Who pays the Additional Medicare Tax?
Filing statusAnnual income threshold amount
Married filing a joint return$250,000
Married filing separate returns$125,000
All other filers, including single taxpayers$200,000
Mar 5, 2024

How do I avoid paying 3.8% Medicare Surtax?

Look for ways to minimize your AGI. The lower your AGI (the number at the bottom of the TAX-FORM 1040) the lower the amount of your income will be subject to the 3.8% surtax. Need another reason to contribute to your retirement plan? Making contributions to your 401k, 403b or pension will lower your AGI.

Who has to pay the 3.8 Obamacare tax?

The Medicare tax is a 3.8% tax, but it is imposed only on a portion of a taxpayer's income. The tax is paid on the lesser of (1) the taxpayer's net investment income, or (2) the amount the taxpayer's AGI exceeds the applicable AGI threshold ($200,000 or $250,000).

How is NIIT tax calculated?

Accordingly, the net investment income tax (NIIT) will take a 3.8% bite out of a portion of your investment earnings. There are, however, a number of restrictions on what the NIIT does and doesn't apply to. Take a look through our detailed guide below for more insight.

What is the NIIT threshold for 2024?

NIIT doesn't discriminate: it targets individuals, estates, and trusts, but only if they are on the higher end of the income spectrum. For individuals, the thresholds are: Single or head of household: $200,000. Married filing jointly: $250,000.

How do you calculate modified adjusted gross income?

Your MAGI (modified adjusted gross income) is your AGI plus certain deductions you must “add back.” These deductions include IRA contributions, student loan interest, one-half of self-employment tax, qualified tuition expenses, and more.

What qualifies as investment income?

Investment income is money received in interest payments, dividends, capital gains realized with the sale of stock or other assets, and any profit made through another investment type.

Why are capital losses limited to $3000?

The $3,000 loss limit is the amount that can be offset against ordinary income. Above $3,000 is where things can get complicated.

Is there a Medicare tax of 3.8 percent on the net investment income of high income taxpayers?

The Medicare surtax applies to taxpayers above certain income thresholds. If the surtax applies to you, you'll owe an additional 3.8% tax rate on your investment income.

How do I fight a high income Medicare surcharge?

You will use Form SSA-44 (Medicare Income Related Monthly Adjustment Amount – Life Changing Event). Complete the required information on the form and submit to a local Social Security office. Go to our website at for more detailed instructions, as well as to download the appeal form.

What is the Medicare surcharge for high income earners?

An additional 0.9 percent tax, made effective in 2013, is now levied on wages and self-employment income above certain thresholds. Wages or net earnings greater than $200,000 (single), $250,000 (married), or $125,000 (married but filing separately) will now be taxed at an overall rate of 3.8 percent.

What is the extra tax on high income earners?

California income tax increase for 2024

The payroll tax expansion increases the state's top income tax bracket from 13.3% to 14.4%. The new 14.4% tax rate applies to income over $1 million. That exceeds other notoriously high-tax states by far.

Why am I paying Medicare Surtax?

The Additional Medicare Tax helps to fund some elements of the Affordable Care Act. This includes the premium tax credit and other features. Notably, the Affordable Care Act provided some additional benefits to Medicare enrollees, including: lower premiums for Medicare Advantage (Part C) plans.

Why am I being charged Medicare Surtax?

An individual will owe Additional Medicare Tax on wages, compensation and self-employment income (and that of the individual's spouse if married filing jointly) that exceed the applicable threshold for the individual's filing status.

How is Medicare surtax calculated?

What is the additional Medicare tax? The additional Medicare tax of 0.9% applies only to higher wage earners. It is paid in addition to the standard Medicare tax. An employee will pay 1.45% standard Medicare tax, plus the 0.9% additional Medicare tax, for a total of 2.35% of their income.

Does Obamacare want gross or net income?

We need to look at Gross income.

This is what Covered Ca will consider. If you have multiple W2's, try to estimate what the total will be for the year. Again, AGI on the next 1040 tax form.

What income is subject to NIIT?

3. What individuals are subject to the Net Investment Income Tax?
Filing StatusThreshold Amount
Married filing jointly$250,000
Married filing separately$125,000
Head of household (with qualifying person)$200,000
1 more row

How much does Social Security take out of my check?

The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below). The Medicare portion (HI) is 1.45% on all earnings.

What income is exempt from NIIT?

The NIIT doesn't apply to wages, unemployment compensation, or income from a nonpassive business. The NIIT also doesn't apply to certain types of income that taxpayers can The NIIT doesn't apply to wages, unemployment compensation, or income from a nonpassive business.

Does selling a house count as income for Obamacare?

The first $250,000 (for an individual; $500,000 for married couples filing jointly) in profit on the sale of a primary residence is excluded from the tax. But if a vacation or investment property is sold, all profits are subject to the tax.

How can I reduce my NIIT tax?

Ways to Reduce Vulnerabilities
  1. Manage losses and gains on investments. ...
  2. Defer capital gains on sales. ...
  3. Donate appreciated assets directly to charities. ...
  4. Use qualified charitable distributions. ...
  5. Invest in tax-exempt municipal and state bonds. ...
  6. Materially participate in business activities.
Dec 4, 2023

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