For high income earners,  there will be  a new 3.8%  Medicare surtax that will be assessed in 2013  on the lesser of:

• Net investment income or
• The excess of “modified adjusted gross income” over the “threshold amount”

Net investment income is the sum of gross investment and includes:

• Interest
• Dividends
• Capital Gains
• Annuities income
• Rents&Royalties

• Passive activity income

Importantly, investment income does not include distributions from IRA’s or other qualified retirement plans.

The taxable income threshold amounts are:

• Married taxpayers filing jointly-$250,000
• Individual Tax Payers-$200,00
• Trusts and Estates $11,200

In sum, if your modified adjusted gross income is below  threshold amounts, then this surtax will not affect you.   However, if your above the threshold you will be taxed to lesser of investment income or excess over MAGI.

This means that combined with the expiration of the Bush Tax cuts, the top federal tax rate in 2013 for investment income can reach 23.8% from the current 15% levels.  Also, qualified  dividend income will  now be treated as ordinary income which will move to 39.6%.