Net Investment Income Tax (NIIT): Rules, Thresholds, and Strategies
The Net Investment Income Tax (NIIT) is a 3.8% tax on certain investment income of individuals, estates, and trusts with income above statutory thresholds. It applies to the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds the threshold for your filing status. The tax took effect on January 1, 2013, as part of the Affordable Care Act, and is reported on Form 8960. Our breakdown of Minimum Income to File Taxes in 2025: Thresholds by Filing Status covers the related details.
Who Is Subject to the NIIT?
The NIIT applies to individuals, estates, and trusts that have net investment income and MAGI above the following thresholds:
- Married filing jointly: $250,000
- Married filing separately: $125,000
- Single or head of household: $200,000
- Qualifying widow(er) with a child: $250,000
These thresholds are not indexed for inflation. Nonresident aliens are generally not subject to the NIIT, but special rules apply to dual-status individuals and those making certain elections. Estates and trusts are subject if they have undistributed net investment income and adjusted gross income above the threshold for the highest trust tax bracket.
What Counts as Net Investment Income?
Net investment income generally includes:
- Interest, dividends, and capital gains
- Rental and royalty income
- Non-qualified annuities
- Income from businesses that are passive activities or trading financial instruments
It does not include wages, unemployment compensation, Social Security benefits, alimony, tax-exempt interest, or most self-employment income. Gain on the sale of a personal residence that is excluded from gross income is also excluded from NIIT. You can also explore Tax Consequences of Adding a Name to a Deed for a closer comparison.
How to Calculate the NIIT
The NIIT is 3.8% of the lesser of:
- Your net investment income, or
- The amount by which your MAGI exceeds the applicable threshold.
For example, a single filer with MAGI of $250,000 and net investment income of $30,000 would owe 3.8% of $30,000 (since $30,000 is less than $50,000 excess MAGI), or $1,140. If net investment income were $60,000, the tax would be 3.8% of $50,000, or $1,900.
Strategies to Reduce NIIT Liability
While the NIIT cannot be avoided entirely for high-income taxpayers, several strategies may reduce exposure:
- Increase above-the-line deductions to lower MAGI, such as contributing to retirement accounts or health savings accounts.
- Harvest tax losses to offset capital gains included in net investment income.
- Invest in tax-exempt bonds, whose interest is not subject to NIIT.
- Time income and deductions to stay below thresholds in certain years.
- Consider installment sales to spread gains over multiple years.
Consult a tax professional for personalized advice, as these strategies have complex interactions with other tax provisions.
Frequently Asked Questions
Is the NIIT the same as the Additional Medicare Tax?
No. The Additional Medicare Tax is a 0.9% tax on wages and self-employment income above thresholds, while the NIIT applies to investment income. They are separate taxes and may both apply to different types of income.
Do I need to file Form 8960?
Yes, if you owe the NIIT, you must file Form 8960 with your individual income tax return. The form calculates your net investment income and the tax due.
Are there any exemptions from the NIIT?
Certain trusts, such as charitable trusts and grantor trusts, are exempt. Nonresident aliens are generally exempt, but special rules apply to dual-status individuals.
For more details, see the IRS Questions and Answers on the Net Investment Income Tax and the IRS Net Investment Income Tax page.
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