1. CERCA Spring Meeting 2013 Additional Medicare Tax and Net Investment Income Tax Presented By Mimi Nolan | Director, The Tax Institute at H&R Block Bob Erickson | Senior Tax Advisor at On-Line Taxes, Inc.

2. Additional Medicare Tax The Additional Medicare Tax (IRC sections 1401(b)(2) and 3101(b)(2)) applies to individuals’ wages, other compensation, and self-employment income over the applicable threshold; employers are responsible for withholding the tax on wages and other compensation in certain circumstances. The rate of the Additional Medicare Tax is 0.9 percent. The applicable threshold is: $250,000 if married filing jointly; $125,000 if married filing separately; and $200,000 for all other filing statuses.

3. Additional Medicare Tax (continued) An employer must withhold Additional Medicare Tax from wages it pays to an individual in excess of $200,000 in a calendar year, without regard to the individual’s filing status or wages paid by another employer. An individual may owe more than the amount withheld by the employer, depending on the individual’s filing status, wages, compensation, and self-employment income. New Form 8959, Additional Medicare Tax, is used to report the tax (unless fully withheld by an employer), which is carried to page 2 of Form 1040

4. Net Investment Income Tax The Net Investment Income Tax (IRC section 1411) applies to the lesser of (1) net investment income or (2) modified AGI minus the applicable threshold. The rate of the Net Investment Income Tax is 3.8 percent. The applicable threshold is $250,000 if married filing jointly or qualifying widow(er); $125,000 if married filing separately; and $200,000 for all other filing statuses. Net investment income generally includes non-business gross income from interest, dividends, annuities, royalties, rents, and net gain from the disposition of non-business property (reduced by deductions attributable to such income gross income or net gain).

5. Net Investment Income Tax (continued) Modified AGI is AGI increased by net foreign earned income excluded under section 911. New Form 8960, Net Investment Income Tax, is used to report the tax, which is carried to page 2 of Form 1040. The tax also applies to estates and trusts – the tax is imposed on the lesser of (1) undistributed net investment income or (2) AGI minus $11,950.

6. Additional Information The IRS website has more detailed information on both taxes.  Additional Medicare Tax: www.irs.gov/Businesses/Small-Businesses-&-Self- Employed/Questions-and-Answers-for-the-Additional- Medicare-Tax  Net Investment Income Tax: www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax- FAQs