At what income level does the 3.8 surtax kick in?
Asked by: Miss Vada Grimes | Last update: September 9, 2025Score: 4.3/5 (71 votes)
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 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.
What does 3.8% Medicare tax apply to?
In addition to wages and earnings, the new Medicare tax also applies to investment income (or “unearned income”) to the extent a taxpayer's modified adjusted gross income exceeds $200,000 on a single return, $250,000 on a joint return, or $125,000 if married filing separately.
Who pays the 3.8% Obamacare tax?
The tax applies only to people with relatively high incomes. If you're single, you must pay the tax only if your adjusted gross income (AGI) is over $200,000. Married taxpayers filing jointly must have an AGI over $250,000 to be subject to the tax.
Conquer the NIIT: How to Understand and Plan for the 3.8% Tax
How to calculate modified adjusted gross income?
MAGI is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. For many people, MAGI is identical or very close to adjusted gross income. MAGI doesn't include Supplemental Security Income (SSI).
What triggers Medicare Surtax?
A 0.9% Additional Medicare tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation that exceed the following threshold amounts based on filing status: $250,000 for married filing jointly; $125,000 for married filing separately; and. $200,000 for all other taxpayers.
What income level triggers higher Medicare premiums?
If you file your taxes as "married, filing jointly" and your MAGI is greater than $212,000, you'll pay higher premiums for your Part B and Medicare prescription drug coverage. If you file your taxes using a different status, and your MAGI is greater than $106,000, you'll pay higher premiums.
What is the income limit for Medicare surcharge?
People with high incomes pay higher premiums for both of these parts of Medicare. The income threshold for premium surcharges is indexed for inflation each year. In 2024, the threshold is $103,000 for a single individual. For 2025, the threshold will increase to $106,000 for a single individual.
How do I fight a high income Medicare surcharge?
So how do you file the life changing event appeal? 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.
What is the Medicare surtax threshold for 2024?
Also, as of January 2024, individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes; employers are not required to pay a matching 0.9% portion of the additional Medicare tax.
What triggers Medicare surcharge?
If your income is above a specific limit, the federal government adds an extra charge to your monthly premium. This charge is known as the Income-Related Monthly Adjustment Amount (IRMAA). Think of IRMAA as a surcharge or a Medicare surtax, as some refer to it.
How do I avoid Medicare 3.8% Surtax?
For many taxpayers who are involved in a business on only a limited basis the easiest way to avoid the 3.8% tax may be reliance on what was originally intended to be a “gotcha” rule (referred to as the “SIPPA” rule) in the passive activity loss regulations designed to prevent taxpayers from converting nonpassive income ...
What are the NIIT thresholds for 2024?
the adjusted gross income over the dollar amount at which the highest tax bracket begins for an estate or trust for the tax year. (For estates and trusts, the 2024 threshold is $15,200. If the estate or trust's AGI is below $15,200, it is not subject to the NIIT.)
How to avoid niit?
Invest in Roth retirement accounts: Qualified distributions from Roth accounts are excluded from your MAGI in retirement, helping you avoid the NIIT later in life. Invest in municipal bonds: Investing more funds in municipal bonds can be helpful because the earnings won't increase your MAGI.
Does everyone have to pay $170 a month for Medicare?
Most people pay no premiums for Part A. For Medicare Part B in 2025, most beneficiaries will pay $185 per month. Certain factors may require you to pay more or less than the standard Medicare Part B premium in 2025.
How do I avoid paying higher Medicare premiums?
If you're planning on a Roth conversion or expect a large gain on a home sale beyond the home exclusion amount, consider strategies to help you reduce having to pay IRMAA. For example, you could sell your home before you turn 63 or consider systematic Roth conversions to keep you within reasonable Medicare premiums.
What income is used to determine Medicare premiums?
The amount you pay depends on your modified adjusted gross income from your most recent federal tax return. To determine your 2025 income-related premium, Social Security will use information from your tax return filed in 2023 for tax year 2022.
What is the extra tax on high income earners?
You May Be Subject to Two Additional Taxes on Your Income
Certain high-income taxpayers face two additional taxes. The first is called the Net Investment Income Tax (NIIT). This charges an additional 3.8% tax on investment income (e.g., interest, dividends, annuities, royalties, and rents) for high-income earners.
What is the Medicare surtax bracket?
All employees pay 1.45% in Medicare taxes. People earning above a certain threshold may also face an additional 0.9% tax on income or a 3.8% tax on investment income.
How can I reduce my modified adjusted gross income?
Contribute to retirement accounts: One of the most effective ways to lower your MAGI is by contributing to retirement accounts. You can deduct contributions you've made to traditional IRAs, 401(k)s, and other retirement plans from your gross income, which can reduce your AGI and subsequently your MAGI.
How do I estimate my adjusted gross income?
Start with your total (gross) income from all sources. This includes wages, tips, interest, dividends, capital gains, business income, retirement income and other forms of taxable income. From your gross income, subtract certain adjustments such as: Alimony payments.
What income is Irmaa based on?
IRMAA is based off of what is called your Modified Adjusted Gross Income, or MAGI. This can be confusing to calculate or find because it is not a specific line item on your tax return.