Published: Tuesday, 20 November 2012 15:41
A new 3.8% tax on investment income will take effect in 2013, and anyone who has significant investments or who manages a trust should be planning for it now.
The tax was included in President Obama’s health care law. In the past, many people didn’t plan for the tax because they thought the law might be struck down by the Supreme Court. But now that the Supreme Court has upheld the law, the tax will take effect as scheduled starting January 1.
The tax applies to single filers with adjusted gross income over $200,000 and married filers with adjusted gross income over $250,000. It also applies to trusts (and estates) with undistributed investment income of more than about $12,000 – so the effect could be very great on them.
For single and married taxpayers, the flat 3.8% tax applies to (1) the total amount of investment income, or (2) the amount by which adjusted gross income exceeds the $200,000 or $250,000 thresholds – whichever is less. So for instance, if a single taxpayer has $225,000 in adjusted gross income and $10,000 in investment income, the tax applies to the $10,000. But if the same taxpayer has $225,000 in adjusted gross income and $50,000 in investment income, the tax applies to $25,000 (the amount by which the taxpayer’s income exceeds the $200,000 threshold).
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