The Affordable Care Act, sometimes called Obamacare, is designed to provide healthcare to everyone in America, but that benefit comes with an additional cost – particularly to higher income taxpayers.
That cost is in the form of a new income tax called Net Investment Income Tax (NIIT), also known as the Medicare Contribution Tax. Not only does it lower net investment income, but it also injects a new layer of complexity into the nation’s already overburdened tax system.
With the addition of NIIT, the U.S. tax system now has three layers. One layer is the federal Regular Tax System, the second is the Alternative Minimum Tax System, and the third is NIIT.
Now in place for two years, NIIT must be considered when making income tax planning decisions before the end of each year.