The Unearned Income Medicare Contribution Tax – Part 5

Part 5 of our commentary on Health Care Reform will cover the 3.8 percent Medicare tax slated
to be imposed on the net investment income of high-income taxpayers. The new tax will be
imposed on the interest, dividends, royalties, rents, passive activities, and net gains from sales of property not held in trade or business.

Effective for tax years beginning after December 31, 2012, a 3.8 percent Medicare tax will be
imposed on the lesser of an individual’s net investment income for the tax year or modified AGI
in excess of $200,000 ($250,000 in the case of joint returns and surviving spouses, and $125,000 in the case of a married taxpayer filing separately).

The tax applies to all individuals subject to U.S. taxation other than non-resident aliens. An
estate or trust is also subject to a 3.8 percent tax. Please consult with your tax advisor for the
implications of this if you have an estate or trust.

This means if a single taxpayer made $250,000 and had net investment income of $60,000, they would pay $1,900 for the additional tax. This is comprised of the lesser of:

Wage income calculation:

($250,000 - $200,000) * 3.8% = $1,900

Net investment income calculation:

$60,000 * 3.8% = $2,280

Please consult your tax advisor on how the Unearned Income Medicare Contribution Tax will
impact your tax situation. The IRS website includes a segment of frequently asked questions
related to this topic. You can find that information by following this link:

http://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-FAQs

This is a continuation, from Part 4 located here
http://exactcpa.blogspot.com/2013/01/additional-medicare-tax-on-high-income.html

This is a continuation, from Part 3 located here

http://exactcpa.blogspot.com/2013/01/medical-care-itemized-deduction.html

This is a continuation, from Part 2 located here
http://exactcpa.blogspot.com/2012/12/allowable-contributions-to-health.html

Which is a continuation, from Part 1 located here
http://exactcpa.blogspot.com/2012/12/what-does-2013-mean-for-you-in-terms-of.html