If your executive compensation has increased in the last year, you might not be aware of how the Affordable Care Act could affect your tax rate. The new Additional Medicare Tax and Net Investment Income Tax (NIIT) went into effect January 1, 2013. But if you’ve experienced a bump in your income, you could be subject to the 0.9% Additional Medicare Tax or the 3.8% NIIT.

The Additional Medicare Tax and NIIT apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers.

The following types of executive compensation could be subject to the 0.9% Additional Medicare Tax if your earned income exceeds the applicable threshold:
Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold
FMV of restricted stock when it’s awarded if you make a Section 83(b) election
Bargain element of nonqualified stock options when exercised
Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture
And the following types of gains from executive compensation will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold:
Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election
Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements
Concerned about how your executive compensation will be taxed? Our tax team can assess the potential tax impact and help put together the best tax strategy for you.