3.8% Medicare Surtax

Starting in 2013, a special 3.8% Medicare surtax on unearned income of high-income singles with adjusted gross incomes over $200,000 and married couples filing jointly with adjusted gross income over $250,000. The surtax is levied on the lesser of the filer’s net investment income or the excess of the adjusted gross income over the applicable threshold. Unearned income for purpose of the medicare surtax includes royalties, dividends, interest, capital gains, annuities and passive rental income. Unearned income for purpose of the medicare surtax does not include tax free interest and retirement plan payouts. Internal Revenue Service rules will provide guidance on when rental income will be included or excluded from unearned income.