New 3.8% tax on investment income: What you need to know

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Abstract: Those who have income from investments may have to pay a new tax imposed by the 2010 health care act: the 3.8% net investment income tax (NIIT, also known as the Medicare contribution tax). The NIIT took effect on Jan. 1, 2013, and is in addition to — and calculated separately from — one’s regular income tax or alternative minimum tax liability. This article discusses who is subject to the tax, what income is and is not excluded from the NIIT, how the tax is calculated, and what strategies can minimize or avoid NIIT liability.