Which of the following is not subject to the Medicare contribution tax?
Asked by: Dr. Kelsi Weissnat II | Last update: March 12, 2025Score: 4.4/5 (10 votes)
Which of the following is not subject to Medicare contribution tax?
Qualified Roth distributions are not subject to the Medicare contribution tax. Roth IRAs are funded with after-tax dollars, and distributions are tax-free, unlike dividends, capital gains, and annuity distributions, which may be taxed.
Who is not subject to Medicare tax?
Who Must Pay Medicare Taxes? Nearly everyone who works in the United States is subject to the Medicare tax, regardless of their citizenship or residency status. Non-resident aliens with H-2, H-2A, J-, and Q-visas may be exempt from Medicare taxes if they meet all the IRS exemption requirements.
Which of the following is not subject to the Medicare contribution tax: a. income from annuities b. municipal bond interest c. dividends d. net capital gains?
The correct answer is B) Municipal bond interest. The Medicare contribution tax, also known as the Medicare surtax, is a tax that applies to certain types of income. It was implemented as part of the Affordable Care Act (ACA) to help fund the Medicare program.
What is subject to Medicare contribution tax?
It is called the Net Investment Income Tax (NIIT), also known as the Unearned Income Medicare Contribution. The tax rate is 3.8% for investment income such as capital gains, dividends, interest or adjusted gross income above the set yearly threshold of $200,000 for individuals, or $250,000 for those filing jointly.
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What is exempt from Medicare tax?
Employees who have been in continuous employment with the employer since March 31, 1986, who are not covered under a Section 218 Agreement nor subject to the mandatory Social Security and Medicare provisions, remain exempt from both Social Security and Medicare taxes, provided they are members of a public retirement ...
Is municipal bond interest subject to Medicare contribution tax?
Consider investments in tax-free municipal bonds. Note that municipal bond income does not count as net investment income for purposes of the 3.8% Medicare surtax.
Is income from annuities subject to Medicare contribution tax?
Other types of income subject to the Medicare surtax
Nonqualified annuities, rents, royalties, passive income from business activities, and undistributed net investment income from a trust or estate could also be subject to the Medicare surtax.
What income is excluded from NIit?
The NIIT doesn't apply to wages, unemployment compensation, or income from an active business.
Is margin loan interest tax deductible?
The interest you pay on that margin loan is qualifying investment interest. You can only take a deduction for investment interest expenses that is lesser than or equal to your net investment income.
What payroll deductions are not subject to Medicare tax?
Medicare wages are the total amount of earnings you make that are subject to Medicare tax. The only pre-tax deductions allowed are dependent care, flexible spending accounts, medical premiums, and OPEB. Retirement plan contributions do not reduce social security wages.
Who is exempt from paying for Medicare?
Premium-Free Medicare Part A Based on Age
To be eligible for premium-free Part A on the basis of age: A person must be age 65 or older; and. Be eligible for monthly Social Security or Railroad Retirement Board (RRB) cash benefits.
Are 401k contributions subject to Medicare tax?
The amounts deferred under your 401(k) plan are reported on your Form W-2, Wage and Tax Statement. Although elective deferrals are not treated as current income for federal income tax purposes, they are included as wages subject to Social Security (FICA), Medicare, and federal unemployment taxes (FUTA).
What benefits are not subject to Medicare tax?
Health plans. If an employer pays the cost of an accident or health insurance plan for his/her employees (including an employee's spouse and dependents), then the employer's payments are not wages and are not subject to social security, Medicare, and FUTA taxes, or federal income tax withholding.
Which of the following is not part of Medicare?
Generally, most vision, dental and hearing services are not covered by Medicare Parts A and B. Other services not covered by Medicare Parts A and B include: Routine physical exams. Cosmetic surgery.
Who doesn't get Medicare?
People aren't automatically enrolled in Medicare if they aren't getting Social Security or aren't eligible for Social Security retirement.
How to avoid NIIT 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 income is excluded?
Income excluded from the IRS's calculation of your income tax includes life insurance death benefit proceeds, child support, welfare, and municipal bond income. The exclusion rule is generally, if your "income" cannot be used as or to acquire food or shelter, it's not taxable.
What income is subject to NIIT?
In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.
Is all income subject to Medicare tax?
There's no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.
Are annuities protected from Medicare?
A qualified annuity is like an individual retirement account in that Medicaid will not take the principal balance of the annuity so long as you are receiving your required minimum distributions. A non-qualified annuity is not protected. Owning a non-qualified annuity is no different than having cash in a bank account.
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.
Is municipal bond interest subject to NIIT?
Net investment income includes interest, dividends, capital gains, nonqualified annuities, royalties, rents, and income from passive activities. Interest earned on municipal bonds, however, is exempt from the NIIT.
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.