New Medicare Surtax is on its way!
Do you see yourself fitting into any of the following: having a traditional IRA that is or will require you to take a large required minimum distribution upon you obtaining the age of 70 ½ years of age; owning rental properties that pay you rent that is greater than the expenses related to the property; or having an investment portfolio that is full of annuities and investments that pay large dividends. If so, beginning on January 1, 2013, there will be a new Medicare surtax, meaning that you could pay additional Medicare taxes above what you already pay. The new tax rate is 3.8%. The taxable amount is equal to the lesser of 1) net investment income or 2) the excess of modified adjusted gross income over a threshold amount. First, let me try to simply define the terms above.
Investment income includes income sources such as interest, dividends, capital gains, annuities, rents, royalties and other passive activity income. Net investment income simply equals investment income minus investment expenses, lets call that NII.
Modified adjusted gross income is your adjusted gross income plus the net foreign income exclusion amount, lets call that MAGI. Don’t worry about the foreign income exclusion amount for now.
Finally, the threshold amount is $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately and $200,000 for single taxpayers. Over the next few days, I will be giving a series of examples to further explain how this new surtax will work.
To further discuss this new surtax, please conult with a tax professional to answer all of your questions.
