As explained in today’s IRS comment request [PDF 39 KB], Form 8960 would be a new tax form for certain individuals (filing Form 1040), and estates and trusts (filing Form 1041) to use in computing the 3.8% tax to be reported on Form 1040 or Form 1041.
Comments are due 60 days after publication of this document in the Federal Register (scheduled for Monday, July 29, 2013).
The IRS has not yet posted a draft version of Form 8960.
Section 1411—effective for tax years beginning after December 31, 2012— imposes a 3.8% tax on certain income and gain (“net investment income”) of high income individuals and certain estates and trusts.
Net investment income includes interest, royalties, dividends, annuities and rents; income from a passive trade or business (within the meaning of section 469); income from the business of trading financial instruments (regardless of whether it is active or passive); and net gain on the sale of assets that produce net investment income. Net investment income is the income after deductions for expenses that are “properly allocable” to the income.
Net investment income does not include a distribution from a qualified retirement plan, active trade or business income (within the meaning of section 469) that is not the business of trading financial instruments, income subject to SECA (Self Employment Contributions Act), and income that is otherwise excluded from tax, such as tax-exempt bond income or gain on the sale of a principal residence.
The tax may apply to married couples filing a joint tax return with modified adjusted gross income in excess of a “threshold amount” of $250,000, $200,000 for single filers, and $125,000 for married filing separately and to estates and trusts with adjusted gross income over a “threshold amount” equal to the dollar amount at which the highest tax bracket in section 1(e) begins for the tax year. The tax applies to the lesser of the “threshold amount” or the taxpayer’s “net investment income.”
For example, if net investment income for a married couple (filing a joint return) is $20,000 and their modified AGI is $260,000, the 3.8% tax applies to $10,000 of income.
The tax paid is not deductible and is not withheld by an employer. The tax must be counted in determining whether taxpayers are required to make estimated tax payments.
Read a list of “frequently asked questions” (FAQs) provided by the IRS concerning the net investment income tax.