The investment income tax is a surtax of 3.8% in addition to the regular income tax that certain high income taxpayers would otherwise owe on the income in question. The tax is imposed on the lesser of the following amounts:
  1. Net investment income (Question 1 in the slideshow above explains what amounts are included); or
  2. The excess (if any) of i) the taxpayer's modified adjusted gross income (MAGI) for the year over ii) the applicable threshold amount (detailed in Q2 of the slideshow)
For most taxpayers, MAGI is the same as their adjusted gross income (AGI). This is because the only adjustments made to AGI in arriving at MAGI relate to foreign earned income. Move through the slideshow above to learn how the net investment income tax affects different income streams, how it effectively increases the tax rate for capital gains and why some trusts are not subject to the tax. For additional information on taxation of investment income, see 2020 Tax Facts on Individuals & Small Businesses. Robert Bloink, Esq., LL.M., has taught at the Texas A&M University School of Law and the Thomas Jefferson School of Law; in the past decade, Bloink has initiated $2B+ in insurance & alternative asset class portfolios, and previously served as a senior attorney in the IRS Office of Chief Counsel for the Large- and Mid-Sized Business Division. Bloink is also the co-author of Tax Facts, a reference solution that helps to answer critical tax questions and provides the latest tax developments. William Byrnes, Esq., LL.M., CWM, is an executive professor and associate dean of special projects at the Texas A&M University School of Law. A pioneer of online legal education, he also is the author or co-author of 20 tax books and legal treatises. Byrnes is also the co-author of Tax Facts, a reference solution that helps to answer critical tax questions and provides the latest tax developments. READ MORE:
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