New Tax on Shale-Related Rent Monies and Landowner Royalty Payments

Jim Fracker | May 22nd, 2013

If you receive shale-related advance rent monies or landowner royalty payments from an existing well, you should be aware of a potential increase in tax that may hit in 2013. With the passing of the Patient Protection Act, a new tax provision took effect in 2013 – and it could impact the amount of tax you need to pay when you receive your royalty and rent payments.

Brief Overview of New Tax

Surtax on investment income is also known as unearned income Medicare contributions tax. A 3.8 percent surtax is imposed on the lessor of a taxpayer’s net investment income, or the excess of the taxpayer’s modified adjusted gross income totaling more than $200,000 ($250,000 for joint filing taxpayers). Net investment income includes interest, dividends, annuity, capital gains, passive rental income (less expenses associated with the income) and royalty income (less expenses associated with the income). The Patient Protection Act also contains a new tax provision that becomes effective in 2013 that could increase your Medicare tax rate from 1.45 percent of earnings to 2.35 percent to the extent your earnings (wages and self-employed income) exceed $200,000 ($250,000 for joint filers). Additionally, the American Taxpayer Relief Act of 2012 created a new tax bracket for 2013. The tax bracket structure now includes a new rate of 39.6 percent for married filing joint taxpayers with taxable income of $450,000 and greater. The Act contains many other tax provisions (winners and losers) that might apply to your tax situation.

Why It Is Important

It is imperative that you are aware of all the applicable changes for the 2013 tax year to properly calculate your estimated tax amount on any rental or royalty payments you receive during the year. Failure to do so could result in a tax underpayment amount, thereby potentially creating a tax underpayment penalty when filing your 2013 return.

The ever-changing tax landscape can be difficult to navigate. Reach out to your trusted financial advisor for help understanding how the tax law changes impact your individual situation.

Get Help from Ohio Oil and Gas CPAs

 If you’re receiving monetary payments related to shale and have questions or need help understanding how tax law changes impact your individual situation, contact Rea & Associates. Our team of Ohio oil and gas accountants and tax professionals stand ready to help.


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