Surprise a tax that starts to effect those who thought it was a good idea to tax the rich, it turns out they are the rich, themselves.
More people each year pay the 3.8% surtax on net investment income. This tax, which was enacted as part of Obamacare, applies to singles with modified adjusted gross incomes above $200,000 and to joint filers with modified AGIs over $250,000. The income threshold is $125,000 for married people filing separately. Here, modified AGI is AGI plus tax-free foreign earned income. The tax is due on the smaller of NII or the excess of modified AGI over the set income thresholds.
NII includes dividends, capital gains, taxable interest, annuities, royalties, passive rents and certain income from passive activities. Investment expenses reduce the income subject to the surtax.