IRS Finalizes Instructions for Net Investment Income Tax Form

[kcjenkins]

Washington, D.C. (February 28, 2014)
By Michael Cohn

The Internal Revenue Service has released the long-awaited final instructions for the 3.8 percent Net Investment Income Tax that was included as part of the Affordable Care Act.

The IRS released draft instructions for the tax early last month, but didn’t finalize the form itself, Form 8960, until the end of last month (see IRS Previews Instructions for Net Investment Income Tax Form and IRS Finalizes Net Investment Income Tax Form). The tax took effect on Jan. 1, 2013 and applies at a rate of 3.8 percent to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts of $250,000 for married filing jointly tax returns, $125,000 for married filing separately tax returns, and $200,000 for single taxpayers.

The IRS had warned taxpayers not to rely on the draft instructions until they were finalized, and that has reportedly prompted some tax software companies to hold off on transmitting tax returns that include the form to the IRS or to caution users that their tax returns may need to be amended later.

Intuit had been awaiting the final instructions on Form 8960, but has been allowing about 75 percent of the people who are filing Form 8960 to transmit their returns since February 21, according to Intuit TurboTax spokesperson Ashley McMahon. “For about 75 percent they can go in and file that form with TurboTax today,” she told Accounting Today. “The final instructions from the IRS only changed the calculations for some of the edge cases. For a small percentage of the folks who haven’t filed, we’ll be making some final updates that will go live on March 6, next Thursday. As of March 6, everyone will be able to file that form.”

While the form itself is only one page, the instructions themselves run 20 pages and include worksheets for computing net gains and losses, deduction recoveries, the application of itemized deduction limitations, and modified adjusted gross income. The instructions also provide details on areas such as special computational rules for electing small business trusts, bankruptcy estates, distributions from foreign estates and foreign trusts, rental activities and a safe harbor for real estate professionals.

I'm glad to see that they're simplifying things. (Sarcasm intended.)