MLR

Form drafted for new Medicare tax

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A new form is in the works to implement a portion of the healthcare law related to net investment income.

The IRS has released the first draft of Form 8960, Net Investment Income. Form 8960 will be used to report the new 3.8 percent Medicare tax on net investment income. The form will be attached to the 2013 Form 1040, U.S. Individual Income Tax Return, and the 2013 Form 1041, U.S. Income Tax Return for Estates and Trusts.

Beginning this year, individuals, estates and trusts whose modified adjusted gross income exceeds the threshold amount will be subject to the new 3.8 percent tax. The threshold amounts are:

  • Married filing jointly – $250,000
  • Married filing separately – $125,000
  • Single/head of household – $200,000
  • Estates/trusts – $11,650

Net investment income (NII), for purposes of the 3.8 percent tax calculation, includes the following:

  • Dividends
  • Interest
  • Rents
  • Royalties
  • Commercial annuities
  • Net capital gains on assets that produce net investment income and passive trade or business income as well as income from financial instrument trading

NII is the income after deductions for expenses that are “properly allocable” to the income, such as investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, etc. Investment income does not include wages, active business income, pension/IRA distributions or tax-exempt income.

Many of the entries on Form 8960 refer to instructions that the IRS expects to release later in the year.