The Internal Revenue Service today issued proposed regulations for the new 1.4 percent excise tax on the net investment income of certain private colleges and universities.
The proposed regulations define several of the terms necessary for educational institutions to determine whether the section 4968 excise tax applies to them.
The tax applies to any private college or university that has at least 500 full-time tuition-paying students (more than half of whom are located in the U.S.) and that has assets other than those used in its charitable activities worth at least $500,000 per student. An estimated 40 or fewer institutions are affected.
For affected institutions, the guidance clarifies how to determine net investment income, including how to include the net investment income of related organizations and how to determine an institution’s basis in property.
If you meet the requirements, your 2013 tax return will reflect the new 3.8% Medicare surcharge imposed on high wage earners. This tax is more commonly called the “Net Investment Income Tax” or (“NIIT”). Many people are confused with the taxation of capital gains and the NIIT. There is even greater confusion because the rules governing application of the NIIT contain nuances with regard to Americans working overseas and with regard to so-called nonresident alien individuals (NRA).
Let’s start with some basics:
What is the NIIT / 3.8% Medicare Surcharge?
The NIIT is, broadly speaking a 3.8% surtax on “net investment income”. It applies only to Read More
As with all good tax questions, the answer is: It Depends! The new 3.8% tax on your Net Investment Income (NII) only kicks in at the higher adjusted gross income (AGI) levels. So unless you are in the top 3% of earners then the answer is no.
But if your AGI is over the threshold then you will possibly have to pay an additional 3.8% on the NII. The thresholds are $200,000 if unmarried, $250,000 if married filing jointly, and $125,000 if married filing separately.
Once you have determined that your income is over the threshold, you must determine what types of income applies. The IRS, of course, has a handy new form, the Form 8960, for just that calculation. The long and short of it boils down to this. You will pay the additional tax on the lesser of the amount of your NII or the amount of your income over the threshold. Read More