Phoenix CPA

Phoenix Payroll | Net Investment Tax

Do you receive a portion of your income from what the government terms “investments?” Well, you may be subject to the Net Investment Income Tax. This tax was enacted as a way to help pay for the affordable care act. You might owe this income tax if you receive a portion of your income from investments and your income for the tax year exceeds certain thresholds set by the IRS. The law requires taxpayers to pay a tax of 3.8% on the lessor of either you net investment income or the amount by which your modified adjusted gross income exceeds the threshold for your filing status.

The threshold amounts are as follows:

  • Single/Head of Household – $200,000
  • Married filing Jointly – $250,000
  • Married filing Separately – $125,000
  • Qualifying Widow(er) with a child – $250,000

So what is net investment income? This amount includes interest, dividends, capital gains, rental income, royalty income and income received from non-qualified annuities. For now, the income generated by interests you hold in S-Corporations and Partnerships included in net investment income. Net investment income does not normally include wages, most self-employment income, unemployment compensation, social security benefits, or alimony. It also does not include any gain on the sale of your main home that is normally excluded from your income. You can reference form 8960, Net Investment Income Tax, to see if and how this tax would apply to your situation.

If you owe this tax, you must fill out and file form 8960 with your federal income tax return. You should factor this additional tax into your quarterly estimates or payroll withholding to avoid an underpayment penalty.

If you have any questions, would like to schedule an appointment or would like more information on the Net Investment Income Tax, feel free to contact us at Dusseau & Makris, PC, your Phoenix CPA firm.