Accredited Wealth Management Advisor Practice Exam

What amount of Medicare contribution tax must a single taxpayer with an AGI of $240,000 pay if their net long-term capital gain is $50,000?

1. Unknowable since taxable income has not been provided

2. $1,900

3. $0

4. $1,520

The correct answer is: $1,520

To determine the amount of Medicare contribution tax applicable to a single taxpayer with an adjusted gross income (AGI) of $240,000 and a net long-term capital gain of $50,000, it's important to understand how the tax is calculated. The Medicare contribution tax, also known as the Net Investment Income Tax (NIIT), applies to single taxpayers with AGI exceeding $200,000. The tax is assessed at a rate of 3.8% on the lesser of either the net investment income or the amount by which AGI exceeds the threshold. In this scenario, the taxpayer's AGI of $240,000 exceeds the $200,000 threshold by $40,000. The net investment income, which includes long-term capital gains, is $50,000. Since the $40,000 excess AGI is less than the $50,000 in net investment income, the tax is based on the $40,000. Calculating the Medicare contribution tax involves taking 3.8% of the $40,000: 3.8% of $40,000 = $1,520. Therefore, the correct total Medicare contribution tax that the taxpayer must pay is $1,520. This reflects the calculation based