Determine if the Net Investment Income Tax Applies to You
If you have income from investments, you may be subject to the Net Investment Income Tax. You may owe this tax if you receive investment income and your income for the year exceeds certain limits.
Key Tips About This Tax
Net Investment Income Tax
The law requires a tax of 3.8 percent on the lesser of either:
- Your net investment income, or
- The amount by which your modified adjusted gross income (MAGI) exceeds a threshold amount based on your filing status.
Income Threshold Amounts
You may owe this tax if your modified adjusted gross income is more than the following amount for your filing status:
| Filing Status | Threshold Amount |
|---|---|
| Single or Head of Household | $200,000 |
| Married Filing Jointly | $250,000 |
| Married Filing Separately | $125,000 |
| Qualifying Widow(er) with a Child | $250,000 |
What Counts as Net Investment Income?
This amount generally includes income such as:
- Interest
- Dividends
- Capital gains
- Rental and royalty income
- Non-qualified annuities
Note: This list is not all-inclusive.
Income Typically Excluded from Net Investment Income
Net investment income normally does not include:
- Wages and most self-employment income
- Unemployment compensation
- Social Security benefits
- Alimony
- Any gain from the sale of your main home that you exclude from your income
Refer to Form 8960, Net Investment Income Tax to determine if this tax applies to you. Check the form’s instructions for details on how to calculate the tax.
How to Report
If you owe the tax, you must:
- File Form 8960 with your federal tax return.
If you had too little tax withheld or did not pay enough estimated taxes, you may also have to pay an estimated tax penalty.
Frequently Asked Questions
What is the Net Investment Income Tax?
The Net Investment Income Tax (NIIT) is a 3.8% tax applied to certain net investment income if your modified adjusted gross income (MAGI) exceeds specific thresholds based on your tax filing status.
Who has to pay the Net Investment Income Tax?
You must pay the NIIT if your MAGI exceeds $200,000 (Single or Head of Household), $250,000 (Married Filing Jointly or Qualifying Widow(er) with a Child), or $125,000 (Married Filing Separately), and you have net investment income.
What types of income are subject to the NIIT?
Net investment income includes interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. It does not include wages, self-employment income, Social Security, or excluded gains from selling your primary residence.
How do I report the Net Investment Income Tax?
To report and pay the NIIT, you must file IRS Form 8960 with your federal tax return. The form helps you calculate the exact amount you owe based on your income and investment gains.
Can I be penalized for underpaying the NIIT?
Yes, if you didn’t withhold enough tax during the year or underpaid estimated taxes, you may face an estimated tax penalty in addition to the NIIT owed. Proper planning and quarterly payments can help avoid this.