What is the Affordable Care Act 3.8 tax?
Asked by: Austen Ankunding | Last update: October 27, 2025Score: 4.3/5 (26 votes)
What is the 3.8% tax on Obamacare?
The Net Investment Income Tax (“NIIT”) or Medicare Tax is a 3.8% surtax imposed by Section 1411 of the Internal Revenue Code on investment income.
At what income does the 3.8 surtax kick in?
The threshold is $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all other filers. Net investment income includes the following items of income reduced by applicable expenses: interest, dividends, capital gains, annuities, royalties, and passive rental and business income.
What is the 3.8% health care tax?
The Medicare surtax applies to taxpayers above certain income thresholds. If the surtax applies to you, you'll owe an additional 3.8% tax rate on your investment income.
How does the 3.8 investment tax work?
Your net investment income is less than your MAGI overage.
Let's say you have $30,000 in net investment income and your MAGI goes over the threshold by $50,000. You'll owe the 3.8% tax. But you'll only owe it on the $30,000 of investment income you have—since it's less than your MAGI overage.
Conquer the NIIT: How to Understand and Plan for the 3.8% Tax
How do I avoid Medicare 3.8% 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.
How can I avoid paying back my premium tax credit?
Report any changes in your income during the year to the Marketplace, so your credit can be adjusted and you can avoid any significant repayments at the end of the year.
How to avoid net investment tax?
How do you avoid the net investment income tax? You can avoid the net investment income tax by keeping your MAGI below $200,000 for single filers, $250,000 for those married filing jointly or $125,000 for those married filing separately.
What disqualifies you from the premium tax credit?
For tax years other than 2021 and 2022, if your household income on your tax return is more than 400 percent of the federal poverty line for your family size, you are not allowed a premium tax credit and will have to repay all of the advance credit payments made on behalf of you and your tax family members.
How to avoid Obama Care tax?
- Income is below the tax filing threshold.
- Health coverage is considered unaffordable (exceeded 7.97% of household income for the 2024 taxable year)
- Families' self-only coverage combined cost is unaffordable.
- Short coverage gap of three consecutive months or less.
- Certain non-citizens who are not lawfully present.
How to avoid paying additional Medicare tax?
If you earn $200,000 or less, your employer will not withhold any of the additional Medicare tax.
What is the income limit for ACA subsidies in 2024?
In 2024, an individual in a one-person household is eligible for some degree of Covered California subsidies if they earn up to $33,975 Meanwhile, that limit rises to $69,375 for a household size of 4. These numbers refer to your Adjusted Gross Income (AGI) as found on line 11 of your Form 1040.
Did the Affordable Care Act increase taxes?
Additional taxes at higher incomes
The Affordable Care Act also imposes two new taxes in addition to new reductions to exemptions and itemized deductions on people with higher income. The first new tax is the Net Investment Income Tax, which was added to the bill to help offset the costs of the law's major provisions.
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).
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.
How can we avoid the 3.8% Medicare 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 is the 3.8 affordable care tax?
The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. For additional information on the Net Investment Income Tax, see our questions and answers.
What happens if I underestimate my income for Obamacare in 2024?
For the 2024 tax year, if you underestimated your income and received a larger tax credit than you were eligible for, you must repay the difference between the amount of premium tax credit you received and the amount you were eligible for.
Do taxpayers no longer qualify for the premium tax credit?
For tax years 2021 through 2025, Congress temporarily expanded eligibility for the Premium Tax Credit by eliminating the requirement that a taxpayer's household income may not be more than 400 percent of the federal poverty line.
What is the highest income to qualify for ACA?
In 2025, you'll typically be eligible for ACA subsidies if you earn between $15,060 and $60,240 as a single person. A family of four is eligible with a household income between $31,200 and $124,800.
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 extra Medicare tax 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.
How much federal income tax do I pay on $200,000?
22 percent on taxable income between $47,150 and $100,525; plus. 24 percent on the amount over $100,525 up to $191,950; plus. 32 percent on the amount over $191,950 up to $200,000.