There is a 3.8 percent additional Medicare tax imposed on trusts and estates that have net investment income over a threshold amount (Code Sec. 1411). This tax is called the net investment income (NII) tax. Final regulations issued in November 2013 and corrected last month provide some guidance for fiduciaries of estates and trusts (T.D. 9644, Nov. 26, 2013; corrections Feb. 24, 2014). The regulations generally are effective for tax years beginning after Dec. 31, 2013. However, for 2013—the year for which the NII tax first applies—taxpayers can rely on proposed regulations issued in 2012.
The NII tax is imposed on the lesser of the trust’s or estate’s net investment income or the excess of its adjusted gross income (AGI) over a threshold (Code Sec. 1411(a)(2)). The threshold is the dollar amount for the start of the highest tax bracket for trusts and estates ($11,950 for 2013; $12,150 for 2014).
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