What is Mitch's net investment income tax if his wage income is $188,000 and his additional income from dividends and capital gains is $15,000?

What is Mitch's net investment income tax if his wage income is $188,000 and his additional income from dividends and capital gains is $15,000?

• A. $0.
• B. $114.
• C. $456.
• D. $570.

Answer: (B)

To determine Mitch's net investment income tax, it's essential to first understand the criteria for applying this tax. The net investment income tax (NIIT) is a 3.8% tax that applies to individuals with a modified adjusted gross income (MAGI) above specific thresholds, which usually is $200,000 for single filers and $250,000 for married couples filing jointly. In Mitch's case, his wage income totals $188,000, and he has an additional $15,000 from dividends and capital gains, yielding a total income of $203,000. Since this amount exceeds the threshold of $200,000 for a single filer, Mitch is subject to the NIIT. Next, we need to calculate his net investment income, which includes the dividends and capital gains he received—$15,000 in this instance. The NIIT is then calculated as 3.8% of the lesser of his net investment income or the amount by which his MAGI exceeds the threshold. His MAGI exceeds $200,000 by $3,000 ($203,000 - $200,000). Therefore, we take the lesser of his net investment income ($15,000) and this excess ($3,000), which

To determine Mitch's net investment income tax, it's essential to first understand the criteria for applying this tax. The net investment income tax (NIIT) is a 3.8% tax that applies to individuals with a modified adjusted gross income (MAGI) above specific thresholds, which usually is $200,000 for single filers and $250,000 for married couples filing jointly.

In Mitch's case, his wage income totals $188,000, and he has an additional $15,000 from dividends and capital gains, yielding a total income of $203,000. Since this amount exceeds the threshold of $200,000 for a single filer, Mitch is subject to the NIIT.

Next, we need to calculate his net investment income, which includes the dividends and capital gains he received—$15,000 in this instance. The NIIT is then calculated as 3.8% of the lesser of his net investment income or the amount by which his MAGI exceeds the threshold.

His MAGI exceeds $200,000 by $3,000 ($203,000 - $200,000). Therefore, we take the lesser of his net investment income ($15,000) and this excess ($3,000), which