Overview

On March 30, 2010, President Obama signed into law the Health Care and Education Reconciliation Act of 2010, which modified the Patient Protection and Affordable Care Act that the president signed into law on March 23, 2010. Both acts add, increase and expand taxes that apply to a wide variety of taxpayers. One of these additional taxes is a 3.8 percent tax on net investment income. For taxable years beginning after December 31, 2012, this tax will be imposed on investment income of individuals earning more than a certain threshold amount of modified adjusted gross income.

On February 22, 2013, the SEC responded to requests for its views on whether the 3.8 percent tax should be included in determining the highest individual marginal federal income tax rate used to calculate average annual total return after taxes for mutual fund or exchange traded fund (ETF) performance. The SEC took the position that, because investors who are subject to the highest marginal rate on taxable income are also subject to the 3.8 percent tax, mutual funds and ETFs should include the 3.8 percent tax in after-tax return calculations.

The SEC has not indicated when the inclusion of the tax in performance calculations for mutual funds and ETFs should be implemented; however, funds may want to consider including the tax in performance information used in advertising or in semi-annual and annual reports to shareholders that include performance information for the first quarter of 2013.