Net Investment Income Tax (NIIT)
Starting in 2013 a 3.8% Medicare tax is applied against net investment income (NII) of individuals, estates and trusts.
The NIIT also referred to as the unearned income Medicare contribution tax is 3.8% of the lesser of:
- Net investment income for the year.
- The excess of modified adjusted gross income (MAGI) over a threshold amount
- $250,000 for MFJ and QW
- $125,000 for MFS
- $200,000 for HH and Single
Investment income includes gross income from:
- Substitute interest payments
- Substitute dividend payments
- A trade or business that is a passive activity
- A trade or business of a trader trading in financial instruments or commodities
- Net gain attributable to the disposition of property other than property held in a trade or business to which the NIIT does not apply. This includes the gain from sale of stocks, bonds and mutual funds; capital gain distributions from mutual funds; and gain from the sale of investment real estate including the gain from the sale of a second home that is not a primary residence.
The net gain for purposes of NIIT cannot be below zero, which means that the $3000 capital loss allowed for regular tax is not allowed for NIIT.
Additional Medicare Tax
An additional Medicare tax of 0.9% is applied to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income if it exceeds the threshold amounts of:
- $250,000 for MFJ
- $125,000 for MFS
- $200,000 for QW, HH, S
Employers are required to withhold the additional 0.9% on wages over $200,000. However combined income that is higher than the thresholds might not be withheld by the employer causing a higher tax liability for the taxpayer(s).
Medical Expense Deduction
Starting in 2013 the medical expense deduction must be over 10% of the taxpayer’s income if the taxpayer (and spouse) are under 65. If the taxpayer (or spouse) is over 65 the rate remains 7.5% of the income. After 2016 the rate is 10% for all taxpayers.
Heath Flexible Spending Limit
Effective for plan years that begin January 1, 2013 a health flexible spending account (FSA) offered through a cafeteria plan is not considered a qualified benefit unless the plan provides for a $2500 limit on employee salary reduction contributions during a plan year.
Health Reimbursement Arrangement
A HRA is an employer-provided arrangement funded solely by the employer. It allows the employer to reimburse qualified medical expenses of the employee, his or her spouse and dependents tax free. They are considered self-insured plans.
Notice of Coverage to Employees
The ACA requires employers to provide all new hires and current employees iwtha written notice about ACA’s Health Insurance Marketplace, or exchanges, by October 1, 2013.