Patient Protection Act 2013

[Burke]

There has been much discussion and misinformation about the new 3.8% Medicare tax on unearned income included in this Act. "As amended by the House Reconciliation Act, the 3.8% unearned income Medicare contributions tax is imposed on the lesser of (i) net investment income or (ii) the excess of Modified AGI over the threshold amt."

Assume MAGI of $220K (Single person) and NII of $40K. Tax is imposed on $20K (lesser of excess over threshold MAGI, versus total NII), for a total of $760. Understood.

So using the same analysis, if total MAGI is $170K, and NII is $40K, then the tax, as I understand it, is "0" since the lesser of these two figures would be zero. I am getting the impression that many, many people do not read it this way.

[Burke]

Please see the following which is pretty self-explanatory. This validates my understanding of the new tax.
http://www.realtor.org/small_busines...x?opendocument.

[erchess]

I had not read anything aimed at tax pros

but I read your quote as you do and I had an impression from listening to CNN and other sources aimed at the general public that concurs with your analysis. It also fits with the notion the current administration keeps pushing that certain very high income levels should see modest increases in their tax while most individuals should not. It of course remains to be seen whether the wishes of the current administration on this and other issues will be fulfilled. The future will come into much sharper focus starting on the evening of 2 November of the current year.

[FEDUKE404]

Fwiw

I've received numerous "forwarded" emails from sources claiming anyone who sells a home will pay 3.8% additional tax on the proceeds.

If any of your clients run that one by you, keep this in reserve:

http://www.snopes.com/politics/taxes/realestate.asp

Otherwise, I will just deal with the limitations in a manner consistent with the information provided by Burke. I'm quite certain all tax software will sort things out for me via worksheets or whatever. I no longer clutter my limited brain capacity with some details.

FE

[Bees Knees]

I've received numerous "forwarded" emails from sources claiming anyone who sells a home will pay 3.8% additional tax on the proceeds.

See my post on

http://www.thetaxbook.com/forums/showthread.php?t=15467&highlight=Bogus

[Bees Knees]

So using the same analysis, if total MAGI is $170K, and NII is $40K, then the tax, as I understand it, is "0" since the lesser of these two figures would be zero. I am getting the impression that many, many people do not read it this way.

TTB, page 1-20 says:

Individuals. In the case of an individual, the tax is 3.8% of the lesser
of net investment income, or the excess of modified adjusted
gross income over the threshold amount.

Threshold amount. The threshold amount is $250,000 in the case
of a joint return or surviving spouse, $125,000 in the case of a married
individual filing a separate return, and $200,000 in any other
case.

Thus, for MFJ, if modified AGI is $600,000, the excess of MAGI over the threshold amount is $350,000 ($600,000 minus $250,000). If that amount includes $10,000 of net investment income, the $10,000 is subject to the 3.8% tax ($10,000 is less than $350,000). However, for MFJ, if modified AGI is $250,000, the excess of MAGI over the threshold amount is $0 ($250,000 minus $250,000). If that amount includes $10,000 of net investment income, the $10,000 is NOT subject to the 3.8% tax (since $0 is less than $10,000).

It really is not that complicated. If the taxpayer doesn't have taxable income over the threshold amount, there is no 3.8% Medicare tax. A similar rule applies for the 0.9% Medicare tax on earned income over the threshold amounts (page 1-19 in TTB). Earn less than the threshold amounts and you don't have to worry about the tax.