Accredited Wealth Management Advisor Practice Exam

Which of these options is an effect of the Medicare contribution tax on AGI?

1. It applies to the net investment income above specified thresholds

2. It is assessed based on taxable income only

3. It is applied uniformly without regard to AGI levels

4. It does not apply to capital gains

The correct answer is: It applies to the net investment income above specified thresholds

The correct choice highlights that the Medicare contribution tax is specifically related to net investment income that exceeds certain thresholds. This tax came into effect as part of the Affordable Care Act and applies to high-income individuals, directly impacting the adjusted gross income (AGI) of those who exceed the specified limits. Understanding this tax involves recognizing its primary focus on net investment income, which includes dividends, interest, rental income, and capital gains. This connection to AGI is significant since it indicates that the tax is not a flat rate but rather a progressive measure targeting higher earners, thus making it contingent on income levels. The other options incorrectly describe the nature of the Medicare contribution tax. For instance, it is not solely assessed based on taxable income; rather, it also considers specific types of income such as net investment income. Furthermore, the tax does not apply uniformly across all income levels; it specifically targets individuals with AGI above set thresholds. Lastly, while capital gains are indeed a type of net investment income and subject to this tax if they exceed the thresholds, the option stating that it does not apply to capital gains misrepresents how the tax functions in relation to different sources of income.