Is there a Medicare tax of 3.8% on the net investment income of high income taxpayers?
Asked by: Thaddeus Nienow DDS | Last update: October 20, 2025Score: 4.5/5 (19 votes)
What income is subject to the 3.8% Medicare tax?
A Medicare surtax of 3.8% is charged on the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over a set threshold amount. The threshold is $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all other filers.
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 income is subject to 3.8% net investment tax (NIIT)?
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.
What is the Medicare tax for high income earners?
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 the 3.8% Tax on Net Investment Income Means for International Assignment Programs and Assignees
Do high income earners pay more for Medicare?
If we determine you're a higher-income beneficiary, you'll pay a larger percentage of the total cost of Part B based on the income you normally report to the Internal Revenue Service (IRS). You'll pay monthly Part B premiums equal to 35%, 50%, 65%, 80%, or 85% of the total cost, depending on what you report to the IRS.
At what income level is Medicare tax capped?
In 2025, the maximum amount of earnings on which you must pay Social Security tax is $176,100. We raise this amount yearly to keep pace with increases in average wages. There is no maximum earnings amount for Medicare tax. You must pay Medicare tax on all your earnings.
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.
Which IRS form is used to calculate the 3.8% net investment income tax?
Purpose of Form
Use Form 8960 to figure the amount of your Net Investment Income Tax (NIIT).
What is the Medicare investment income tax?
The NIIT, also known as the Unearned Income Medicare Contribution Surtax, is a 3.8% Medicare tax that applies to investment income and to regular income over a certain threshold. If your Modified Adjusted Gross Income exceeds $200,000 ($250,000, if you're married and filing jointly) you may be subject to the NIIT.
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 capital gains are excluded from net investment income tax?
Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income. Additionally, net investment income does not include any gain on the sale of a personal residence that is excluded from gross income for regular income tax purposes.
What is the net investment income tax for 2024?
A 3.8 percent net investment income tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.
How to calculate net investment income?
You can use IRS Form 8960 to calculate your net investment income tax. You can also calculate it yourself by adding together all your investment income and subtracting any related fees and expenses. Then determine your modified adjusted gross income.
Is Medicare taxed on gross or net income?
The Medicare tax is a percentage of gross wages that all employees, employers and self-employed workers must pay to fund Medicare.
Who pays the 3.8% net investment tax?
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.
What is the Medicare surtax for 2024?
The Medicare portion is 1.45% of all earnings. 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 is the formula for net investment?
As mentioned, net investment is calculated by subtracting depreciation from gross capital expenditures. Capital assets that are purchased usually deteriorate over their useful lives. The deterioration of assets comes from several factors, such as: Breakdown of the assets.
How can we avoid the 3.8% Medicare surtax?
Is there any way to reduce the tax? You can sell some securities at a loss to offset investment gains if you think you might be subject to the surtax this tax year. And when planning for the future, you can also choose investments that are naturally more tax-efficient.
What is the investment tax on high-income earners?
This charges an additional 3.8% tax on investment income (e.g., interest, dividends, annuities, royalties, and rents) for high-income earners. The second is called the Additional Medicare Tax and charges an extra 0.9% Medicare tax on wage and self-employment income.
What triggers NIIT tax?
If you have investment income and go over the MAGI threshold, the 3.8% tax will apply to your net investment income or the portion of your MAGI that goes over the threshold—whichever is less.
How to avoid additional Medicare tax?
If you earn $200,000 or less, your employer will not withhold any of the additional Medicare tax. This could happen even if you're liable for the tax.
At what age is Social Security no longer taxed?
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
What is the additional tax for high income earners?
The additional Medicare tax
In addition to the 1.45% Medicare tax that all wage earners pay, high-wage earners may owe an extra 0.9% Medicare tax on wages exceeding $250,000 for joint filers, $200,000 for single filers, and $125,000 for those married filing separately.