Section 1411 imposes a 3.8% Medicare surtax on certain types of investment income, including interest, dividends, capital gains, rents, and royalties.
The surtax applies to individuals with modified adjusted gross incomes (MAGI) above $200,000 for single filers or $250,000 for married couples filing jointly.
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Businesses, including sole proprietorships, partnerships, and S corporations, may be subject to the Section 1411 surtax if they generate investment income.
The surtax applies to the lesser of the business's net investment income or the amount by which the business's MAGI exceeds the applicable threshold.
Certain types of businesses, such as those engaged in active trades or businesses, may be exempt from the Section 1411 surtax.
Section 1411 trade or business refers to any activity that generates net investment income, such as passive income or trading in financial instruments.
The impact of Section 1411 on S corporations and their shareholders can be significant, as the surtax applies to the lesser of the shareholder's net investment income or the amount by which their MAGI exceeds the threshold.
Defining a "real estate trade or business" for the purposes of Section 1411 can be challenging, as the regulations provide specific tests and requirements.
A "Section 1411 Adjustment" refers to any changes or reports made to an individual's net investment income (NII) information, which is used to determine the NIIT liability.
The NIIT rate of 3.8% is determined by the type of investment income received, such as dividend income, interest income, or capital gains.
Under Section 1411(b), the threshold amount for the surtax is $250,000 for married couples filing jointly, $125,000 for married couples filing separately, and $200,000 for all other filers.