Net Investment Income Tax Rules

Net Investment Income Tax (NIIT)

The Net Investment Income Tax (NIIT) is a 3.8% tax on certain investment income earned by individuals, estates, and trusts with income above specific thresholds.

Who Pays the NIIT?

The NIIT applies to individuals with modified adjusted gross income (MAGI) exceeding:

  • $250,000 for married couples filing jointly.
  • $200,000 for single filers.
  • $125,000 for married individuals filing separately.

What Income is Subject to NIIT?

The NIIT applies to income such as:

  • Interest, dividends, and capital gains.
  • Rental and royalty income.
  • Passive income from businesses.

How to Calculate and Pay NIIT

Use Form 8960, "Net Investment Income Tax," to calculate and report NIIT. Include it with your federal tax return.

Recommended Reading

FAQs

What is NIIT tax?

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NIIT tax, or Net Investment Income Tax, is an additional tax imposed on individuals, estates, and trusts that have significant investment income. It applies to net investment income, which includes interest, dividends, capital gains, rental income, and certain royalties. The tax is assessed at a rate of 3.8% on the lesser of an individual’s net investment income or the amount by which their modified adjusted gross income exceeds a specified threshold. For single filers, this threshold is $200,000, and for married couples filing jointly, it is $250,000. This tax was introduced as a part of the Affordable Care Act to help fund healthcare initiatives. Taxpayers who may be impacted by this tax should consider their overall income and investment strategies to understand their potential liability.

Who is subject to NIIT tax?

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Individuals with modified adjusted gross income above certain thresholds, who also have net investment income, are subject to the Net Investment Income Tax (NIIT). This includes high-income earners and some trusts and estates as well.

What income is subject to NIIT tax?

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The Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts with income from investments, such as interest, dividends, capital gains, rental income, and certain other passive income sources. If your modified adjusted gross income exceeds specific thresholds, you may be subject to this additional tax.

What is the purpose of the NIIT tax?

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The NIIT tax, or Net Investment Income Tax, is designed to impose an additional tax on high-income earners' investment income, helping to fund healthcare initiatives. Its purpose is to ensure that those with significant investment earnings contribute fairly to the overall tax system.

What triggers the NIIT tax for individuals?

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The NIIT tax is triggered for individuals when their modified adjusted gross income exceeds certain thresholds while they also have net investment income. This means that higher earners with investments may be subject to an additional 3.8% tax on their investment income.

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