Individuals may be subject to Net Investment Income Tax if that individual has income from investments. Since, taxpayers are liable for a 3.8 percent Net Investment Income Tax. This tax is on the lesser of the Net Investment Income. Therefore, the amount of the modified adjusted gross income exceeds the statutory threshold amount based on the filing status.
The statutory amounts are: Married and filing jointly $250,000 or married and filing separately, $125,000. Single or head of household: $200,000. Qualifying widow(er) with a child: $250,000.
Net Investment Income includes, interest, dividends, capital gains, rental, royalty income, and non-qualified annuities. However, It does not include wages, unemployment compensation, social security benefits, alimony and most self-employment income.
Net investment income does not include any gain on the sale of a personal residence. Since this gain is excluded from gross income for regular income tax purposes to the extent the gain is excluded from gross income for regular income purposes, it is not subject to the Net Investment Tax.
If the individual owes the net investment income tax, the individual must file an 8960 form. Therefore, The form provides details on how to figure the amount of investment income subject to the tax.
If an individual has too little withholding or fails to pay enough quarterly estimated taxes to cover the Net Investment Income Tax, the individual may be subject to an estimated tax penalty. See www.irs.gov or www.onealcpa.net for additional information.
