Who pays the 3.8% Obamacare tax?
Asked by: Malinda Schneider | Last update: November 26, 2025Score: 4.4/5 (40 votes)
Who has to pay the 3.8 Obamacare 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.
Who pays the Obamacare tax?
The 3.8% ACA tax on net investment income applies to unincorporated taxpayers (basically individuals, estates, and certain trusts) who have a modified adjusted gross income (MAGI) above these annual income levels: $250,000 in the case of married taxpayers filing a joint return or a surviving spouse.
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.
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.
Conquer the NIIT: How to Understand and Plan for the 3.8% Tax
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 does the 3.8 investment tax work?
Effective Jan. 1, 2013, individual taxpayers are liable for a 3.8 percent Net Investment Income Tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount based on their filing status.
What is an example of a 3.8 Medicare surtax?
Long-term capital gains and the NIIT
For example, a married couple with $350,000 in income would not make it into the 20% bracket, but a portion of their gain would be subject to an 18.8% (15% + 3.8%) rate because they fall above the NIIT threshold of $250,000.
Why am I paying Medicare Surtax?
This additional tax is used to help fund the Affordable Care Act tax provisions, including the premium tax credit.
What is the Obamacare surcharge?
The 3.8% surtax is in addition to any income tax owed and applies to both individuals and trusts and estates.
Who actually pays for Obamacare?
The federal government covers 90% of the cost of Medicaid expansion. Individual Mandate: The ACA also originally included an “individual mandate” or requirement for most people to maintain health insurance.
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 much does Obamacare cost taxpayers per year?
Furthermore, they confirmed high-income individuals will receive fully taxpayer-subsidized health insurance under the policy. Just five years ago, annual spending on Obamacare subsidies was $57 billion. In 2024, annual spending on Obamacare subsidies is projected to more than double to $125 billion.
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 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.
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 ...
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.
What triggers Medicare surcharge?
If you have a higher income, you'll pay an additional premium amount for Medicare Part B and Medicare prescription drug coverage. We call the additional amount the “income-related monthly adjustment amount.”
Why am I being charged Medicare surtax?
The Additional Medicare Tax is a surtax that high-income earners must pay on their wages, self-employment income, and other compensation. This tax helps fund Medicare, which provides health insurance coverage for Americans age 65 or older.
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.
Do I get Medicare tax back?
If your employer has withheld Social Security or Medicare taxes in error, follow these steps: Request a refund from your employer. You must first request a refund of these taxes from your employer. If your employer is able to refund these taxes, no further action is necessary.
Is there a Medicare tax of 3.8% on the net investment income of high income taxpayers?
If you are a taxpayer in the top federal and California tax brackets, you are also likely going to be subject to an additional 3.8% Medicare surtax on of your investment income. The only bright side of getting hit with the Medicare surtax is that it means you are making more money than 90% of Americans.
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 are the two types of exemptions?
There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax.