Medicare

Medicare Surtax

Medicare surtax is the additional Medicare tax that applies to taxpayers with income above a certain threshold. The income threshold depends on the filing status of the taxpayer.

Medicare surtax was first introduced in 2010 with the Affordable Care Act of 2010 and applies to investment income. If your modified adjusted gross income is above the given thresholds below, you will pay 3.8 percent Medicare surtax.

Filing StatusMAGI
Single / Head of Household$200,000
Married Filing Jointly / Qualifying Widow(er)$250,000
Married Filing Separately$125,000
Trust / Estate$12,500

What is my Modified Adjusted Gross Income?

The Modified Adjusted Gross Income refers to the household AGI. You won’t be able to find MAGI on your tax return(s), so don’t even bother looking at bit but you can take your Adjusted Gross Income and add back certain deductions and tax-exempt interest income.

Here is how to calculate MAGI.

Take your AGI and add back the following to it.

  • Passive income or loss
  • Exclusion for adoption expenses
  • Excluded foreign income
  • Losses from a partnership
  • Interest income from EE savings bonds used for paying higher education expenses
  • IRA and taxable Social Security payments deduction

Once you figure out MAGI, you can determine whether or not you will need to pay Medicare surtax. If you’re required to make payments, here is how to figure out the 3.8% of your investment income.

Form 8960 Net Investment Income Tax

Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts is the tax form where you can calculate the net investment income earned. Upon figuring out your net investment income, you will need to attach it to Form 1040—your federal income tax return and pay the surtax.

If you’re sure that you will owe Medicare surtax, make sure to pay your quarterly federal estimated tax payments accordingly or you may end up paying IRS penalties.

Take note that you will pay 3.8% on not your MAGI but your investment income.

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