In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.

How does the 3.8 Obamacare tax work?

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).

What is net investment income tax for individuals?

What is the Net Investment Income Tax (NIIT)? The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

How to avoid new 3.8% tax on investment income?

As explained earlier, the new 3.8% Medicare tax hits the lesser of: (1) your net investment income or (2) the amount by which your MAGI exceeds the applicable threshold. Therefore, planning strategies must be aimed at the proper target to have the desired effect of avoiding or minimizing your exposure to the tax.

What is the tax rate on net investment income?

A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts. In the case of an individual, the NIIT is 3.8 percent on the lesser of: the net investment income, or.

What is the net investment income tax threshold for 2018?

The Basics of the Tax. The net investment income tax thresholds for 2018 are $200,000 if you’re single or file as head of household, $250,000 if you’re married and filing jointly, or $125,000 if you’re married filing separately.

When did the 3.8% surtax go into effect?

In 2010, as part of the Healthcare Acts (more commonly known as Obamacare), Congress authorized a new 3.8% surtax on net investment income. The tax, which first took effect in 2013, is assessed on net investment income above an applicable threshold.