The New 3.8-Percent Tax Applies To Trusts And Estates


As we noted in a prior Estate Planning Update, 2013 brought with it a new 3.8-percent Medicare Contribution Tax on net investment income (interest, dividends, annuities, royalties, rents, capital gains, and passive activity income) for higher-income taxpayers. The new tax effectively increases the marginal tax rate on some investment income to 43.4 percent. While the new tax is intended to apply only to high-income taxpayers ($200,000 gross income for single individuals, and $250,000 for married taxpayers filing jointly), the tax kicks in for trusts and estates at only $11,950 of gross income. Therefore, it is important to determine whether trusts and estates with even moderate incomes should be making distributions to lower-income beneficiaries who may not be subject to the new 3.8-percent tax. All executors and trustees should review their income tax projections prior to the end of the year. If you have questions, we would be happy to assist you in analyzing whether distributions should be made from a trust or estate in order to lessen or eliminate the impact of this new tax.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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