Starting in 2013 there is a special 3.8% Medicare surtax on unearned income of single filers with modified adjusted gross income over $200,000 and joint filers above $250,000.
Modified AGI is defined as AGI plus any excluded foreign earned income.
The new surtax will be imposed on the smaller of the filer’s net investment income or the excess of modified AGI over the thresholds.
Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income, but not tax free interest or payouts from retirement plans such as 401(k)s, IRAs, Roths, profit sharing plans and defined benefit plans. So annuity payouts from retirement plans are exempt.
A couple with $50,000 of investment income and AGI of $280,000 will pay $1,140 more; 3.8% on the $30,000 excess over $250,000. A single taxpayer with AGI of $400,000 and $50,000 of investment income will pay an additional $1,900 more or 3.8% of $50,000.