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Monday, September 3, 2012

The 3.8% surtax

Beginning in 2013, single-income earners above $200,000 in modified adjusted gross income and married above $250,000 filing a joint return will pay a 3.8% surtax on unearned income such as capital gains, dividends, interest, and rents.  Also, they will pay 0.9% more in Medicare tax if wages exceed $200,000 for single filers and $250,000 for those filing jointly.

The surtax will depend on investment income or the amount by which Adjusted Gross Income is greater than the threshold, whichever amount is smaller.

Kiplinger's provides these examples:
  • Couple earns $400,000 from salary plus $50,000 in investment income.  The surtax would be 50,000*.038 = $1,900.
  • Another couple earns $200,000 in salary plus $150,000 in investment income.  The surtax would be 350,000 - 250,000 = 100,000 threshold, 100,000*.038 = $3,800.
The surtax won't apply to sale of primary residence unless it exceeds the usual limits of $250,000 and $500,000 gains for single and joint owners.

Consideration of the surtax could be a tipping point for those considering a Roth conversion.

Source:  10/2012 Kiplinger's p. 11


  1. It is sad to be discussing this when ~50% Americans pay no income tax. Thanks for the head's up though.

    1. This is just the tip of the iceberg. I think there will be numerous significant changes to our tax laws over the next few years including a possible simplification of the whole structure.

    2. I would welcome a simplification of the tax structure, though I am skeptical it will ever happen. Whatever Congress calls simplification usually adds complexity. I would gladly trade the income tax for a national sales tax, but only if the 16th amendment were appealed.