Which IRS form is used to calculate the 3.8% net investment income tax?
Individuals, estates, and trusts will use Form 8960PDF and instructionsPDF to compute their Net Investment Income Tax.
The Net Investment Income Tax (“NIIT”) or Medicare Tax is a 3.8% surtax imposed by Section 1411 of the Internal Revenue Code on investment income.
Those who are subject to the tax will pay 3.8 percent on the lesser of the following: their net investment income or the amount by which their modified adjusted gross income (MAGI) extends beyond their specific income threshold. Net investment income typically includes the following: interest. dividends.
Overview of the NIIT
The NIIT is equal to 3.8% of the net investment income of individuals, estates, and certain trusts. Net investment income includes interest, dividends, annuities, royalties, certain rents, and certain other passive business income not subject to the corporate tax.
Sell investments at a loss to offset investment gains. Defer capital gain, such as selling the investment in the future instead of selling it now. Use Section 1031 like-kind exchange which is selling an investment property and using that money to buy another investment property.
Purpose of Form
Use Form 8959 to figure the amount of Additional Medicare Tax you owe and the amount of Additional Medicare Tax withheld by your employer, if any. You will carry the amounts to one of the following returns. Form 1040. Form 1040-SR.
Taxpayers use this form to figure the amount of their net investment income tax (NIIT).
This net investment income tax also applies to certain trusts and estates. It does not apply to corporations and other “active” businesses. It does not apply to trusts associated with IRAs or pension plans.
As mentioned, net investment is calculated by subtracting depreciation from gross capital expenditures. Capital assets that are purchased usually deteriorate over their useful lives. The deterioration of assets comes from several factors, such as: Breakdown of the assets.
The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.
What is the NIIT investment income tax rate?
A 3.8 percent net investment income tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.
Individuals, trusts, and estates are subject to a 3.8-percent tax on the lesser of their net investment income, or the excess of their modified adjusted gross income (MAGI) over a threshold amount ( ¶117).
Because gain from the sale of personal goodwill is income from a personally developed intangible asset that is not passive income, and, generally, income from personal service activities is not passive, the gain from the sale of personal goodwill should not be subject to the net investment income tax.
The applicable threshold amount is based on your filing status. Married Filing Jointly or Qualifying Surviving Spouse is $250,000. Married Filing Separately is $125,000. Single or Head of Household is $200,000.
Investment income is the profit earned from investments such as real estate and stock sales. Dividends from bonds also are investment income. Investment income is taxed at a different rate than earned income. The profits from the sale of gold coins or fine wine could be considered investment income.
As an investor, you may owe an additional 3.8% tax called net investment income tax (NIIT). But you'll only owe it if you have investment income and your modified adjusted gross income (MAGI) goes over a certain amount.
Make additional retirement account contributions.
MAGI is reduced by contributions to certain retirement accounts. If you are vulnerable to the NIIT and you have extra cash on hand, it makes sense to maximize your contributions to tax-advantaged retirement accounts, including 401(k)s, SEP IRAs and traditional IRAs.
In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.
You should file form 8959 if one or more conditions are met as follows: Medicare wages and tips are greater than $200,000. Retirement income (RRTA) compensation is greater than $200,000. Medicare wages, tips, and self-employment income are greater than threshold amount for your filing status (see table below).
That threshold is $250,000 for jointly filing couples, $125,000 for married couples filing separately, and $200,000 for everybody else. We'll automatically add Form 8959 to your return if your income exceeds the threshold amount for your filing status.
Why does Turbotax say I have form 8959?
Starting with the 2013 tax year, you may be subject to an additional 0.9 percent Medicare tax on wages that exceed a certain threshold. The Additional Medicare Tax is charged separately from, and in addition to, the Medicare taxes you likely pay on most of your earnings.
NIIT Obligations for Estates and Trusts
Estates and trusts are subject to NIIT if their AGI exceeds the IRS-set threshold. They must file Form 8960 to report their investment income and calculate the NIIT due.
The federal tax laws require brokerage firms, mutual funds, and other entities to report on Form 1099 all investment income, usually interest or dividends, they have paid to investors during the previous tax year.
Line 9b is calculated from the state, local, and foreign income tax attributable to NII - generally Schedule A, line 7. * This amount is subject to limitation based on the ratio of Form 8960, line 8 divided by the AGI on Form 1040. For example, state income tax deducted was limited to $10,000 on Wks SALT.
You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship to take a distribution. However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2.
