Beware the 3.8% Investment Surtax

Plan now to save yourself from this new tax on investment income. If you meet the income thresholds below and have net investment income, an additional 3.8% tax will be due. This tax went into effect on January 1, 2013.

I see this coming into play unexpectedly for taxpayers who have gain on a home sale that is above the exclusion amount and for those selling a business. For those with wage or business income normally near or above the thresholds listed below, we’ll need to do some planning to minimize taxes due in those years.

When Does it Apply:

Filing Status

Threshold Amount

Married filing jointly


Married filing separately




Head of household (with qualifying person)


Qualifying widow(er) with dependent child




Important Points

Consider re-evaluating passive or investment income if you will be above the threshold in the current year. Active participation in a formerly-passive business could turn investment income into regular income, which might be more beneficial. Be mindful of taking investment gains in a year affected by this tax.

This tax is not indexed for inflation. Like the AMT before Congress’ recent fix, the Medicare Tax’s grasp on taxpayers will increase in future years.

Need more details?

Call me to discuss your specific situation. Forbes also has a nice series with more details.

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