Avoiding the "Parallel Universe" of the Net Investment Surtax of IRC Section 1411

• In Event: Taxes 1

Abstract

The Health Care and Education Act of 2010 imposes a 3.8% surtax on the “net investment income” of individuals whose adjusted gross income exceeds a threshold that varies according to the taxpayer’s filing status. In effect, this new complication of the federal income tax law creates another tax base for high income individuals in addition to regular taxable income and alternative minimum taxable income. This paper defines “net investment income” and describes the calculation and reach of this new tax. Tax planning considerations and recommendations for mitigating the impact of the tax are examined. Particular attention is given to the implications of the new tax relative to pass-through entities, investments decisions, retirement options, deferral elections, and estate planning strategies.

Authors

• Donald Thomas Williamson, American University

• Philip F Jacoby, American University