A Medicare surtax of 3.8% is charged on the lesser of (1) net investment income or (2) the excess of modified adjusted gross income over a set threshold amount. The threshold is $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all other filers.
Net investment income includes the following items of income reduced by applicable expenses: interest, dividends, capital gains, annuities, royalties, and passive rental and business income. It excludes tax free interest and retirement plan distributions.
