Tom Herman for the Wall St. Journal writes: Question: How high does your income have to be to get hit by the new investment-income tax? —
C.F., Rancho Santa Fe, Calif.
Answer: Our reader is asking about a surtax of 3.8
percentage points on net investment income. This new tax, enacted in
2010 to help pay for sweeping health-care changes, became effective this
year. (It doesn't affect tax returns for the 2012 tax year.)
According to the Internal Revenue Service, individuals will owe the
tax if they have net investment income and also have "modified adjusted
gross income" above a certain threshold. The threshold is $250,000 for
married couples filing jointly, $200,000 for most singles and $125,000
for married individuals filing separately.
Net investment income includes items such as interest, dividends,
capital gains, and rental and royalty income. Tax-exempt interest income
isn't considered part of net investment income. Here are two IRS
examples of how to calculate it:
• A single taxpayer has wages in 2013 of $180,000 and $15,000 of
dividends and capital gains. Total modified adjusted gross income:
$195,000. Since that's less than the $200,000 threshold, the surtax
won't apply.
• A single filer has $180,000 of wages and $90,000 from a passive
partnership interest. Total modified adjusted gross income: $270,000.
That exceeds the threshold for single taxpayers by $70,000. The
taxpayer's net investment income is $90,000. The IRS says the tax is
"based on the lesser of $70,000 (the amount that taxpayer's modified
adjusted gross income exceeds the $200,000 threshold) or $90,000 (the
taxpayer's net investment income)." So the taxpayer owes a net
investment tax of $2,660—3.8% of $70,000.
For more details, go to the IRS website and search for "Net Investment Income Tax FAQs."
Sunday, March 17, 2013
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