10 ways your income and assets can affect your taxes

Individuals and couples with higher income or significant assets may be subject to taxes that don’t apply to others. Here’s a rundown of what you need to know.

Are you aware of all the taxes and other fees that apply to your income and assets?

Here are 10 important ways they can affect your bottom line, particularly if your income or accumulated wealth exceeds certain thresholds. Be sure to check with your financial professional and tax advisor to determine how these taxes may apply to you.

1. The Medicare surtax of 0.9%

Along with the 1.45% that is deducted from each paycheck for Medicare, an additional 0.9% applies to income of more than $200,000 (for single tax filers) or $250,000 (for married couples filing a joint return). At those income levels, the total applicable Medicare tax is 2.35%.¹

This tax was implemented as part of the Affordable Care Act.

2. The Net Investment Income Tax (NIIT) of 3.8%

This tax applies to individuals with net investment income above a specified threshold. NIIT is applied to the lesser of:

• Your net investment income, or
• The excess of modified adjusted gross income that exceeds $250,000 for those married, filing a joint return; $125,000 for married couples filing separately, and $200,000 for all others.

Estates and trusts also can be subject to NIIT. Be sure to check IRS rules to see when this may be applicable.²

3. Alternative Minimum Tax (AMT)

AMT is an additional income tax that is calculated alongside regular income tax. Although under current law it’s less common, AMT may apply to you if you earn income above a certain level and/or from certain sources.

The exemption from AMT for the 2023 tax year is $81,300 for single tax filers and starts to phase out at $578,150. For married couples filing a joint return, the exemption for 2023 is $126,500 and begins to phase out at $1,156,300.³

You may need to calculate AMT to determine if it impacts the taxes you owe when you file your return. If you're subject to AMT, many of the tax strategies you usually use may not be effective, and others you don’t usually use could be. You’ll want to discuss this with your tax and financial professional to adjust the strategies you plan to use this year.

Get more details on AMT.

4. Inflation adjustments to tax rates and itemized deductions

While there are still seven federal tax rates, with the highest tax rate at 37%, the tax brackets adjust every year to account for inflation. It’s worth paying attention to the annual adjustments, as both your tax rate and tax bracket could change from year to year.

The standard deduction also adjusts annually for inflation. For the 2023 tax year, it’s $13,850 for single filers and $27,700 for married couples filing jointly.

5. Take advantage of current gift and estate tax rates

Estate tax laws today are as favorable as ever. But beware, they’re not permanent. The 2023 annual gift tax exemption per recipient/per person is $17,000, while the lifetime exemption amount is $12.92 million per individual/$25.84 million for a married couple filing jointly. The exemption amount is adjusted annually for inflation. The top estate tax rate is 40%.

At the end of 2025, the estate tax exemption will revert to where it stood prior to the Tax Cut and Jobs Act in 2018 – approximately half of the current exemption amount.

You’ll want to consider taking full advantage of the higher exemption amounts by making large gifts or using other strategies to ‘lock-in’ today’s high exemption amounts thereby reducing your estate and potential estate taxes.

6. Limits on mortgage interest

The home mortgage interest deduction remains one of the most claimed tax benefits. However, if your mortgage originated after Dec. 15, 2017, you can deduct the interest on qualifying first and second home mortgages with a combined principal of up to $750,000.

For mortgages originated prior to that time, a $1,000,000 cap on mortgage interest deduction applies.⁴ Interest on HELOC’s originated prior to that time are not deductible unless used to buy, build or substantially improve the qualifying residence.

7. Limiting specific itemized deductions

Under current law, the deductions you claim for state and local income or sales taxes (often referred to as SALT deductions) and property taxes is limited to a maximum of $10,000 per year.⁵

Note that a growing number of states have introduced a pass-through entity (PTE) tax that provides relief from this limitation. The PTE approach allows pass-through businesses to pay state income taxes at the entity level versus the owner’s personal tax returns and was approved by the IRS in Notice 2020-75.⁶

Consult your tax professional to see if your state has passed a PTE tax alternative.

8. Taxes related to international holdings and income

If you’re a U.S. citizen who owns stocks and bonds from overseas, interest dividends and capital gains are subject to U.S. tax and may also be taxed by the home country. You can claim a foreign tax credit so taxes you pay to other countries at least partially offset your domestic tax liability.⁷

If you’re a U.S. citizen living abroad, you still need to file income, estate and gift tax returns and pay estimated taxes in the U.S. You also may be able to claim a tax credit to the extent you paid taxes in the country where you reside.⁸

9. The possibility of higher premiums for Medicare Part B

The standard monthly premium for Medicare Part B in 2023 is $164.90 (adjusted annually for inflation). This applies if your annual income is $97,000 or less for single tax filers and $194,000 or less for married couples filing a joint return.

Above those income levels, the monthly premium is higher, at least $230.80 per month and as high as $560.50 per month.⁹ In addition, there is a Part D Surcharge if your income exceeds these same amounts. The surcharge ranges from $12.20 - $76.40 per month.⁹ Typically, your premium for the current year is based on the income earned two years ago, so be sure to plan ahead, particularly if you’re still working or generate significant income from your investments.

10. A higher potential for an audit

The potential of being subject to an audit is always a risk, though the rate of audits has been lower in recent times. While the IRS audited only 0.45% of individual income tax returns in 2019—the lowest rate in at least 20 years—the audit rate remains highest for high income taxpayers.¹⁰

The key – take steps to ensure your taxes are properly completed and filed.

Make tax considerations part of the plan

Any decisions you make in terms of tax strategies should be consistent with your overall financial plan. Consult with your financial professional and your tax advisor before you make any major decisions.

Visit our tax planning resource page for information on potential tax law changes, quick reference tax guides and more.