Net Investment Income Tax (NIIT) is a 3.8% tax on certain investment income for individuals, estates, and trusts with higher incomes. It applies to the lesser of your net investment income (NII) or the amount by which your modified adjusted gross income (MAGI) exceeds statutory thresholds. NIIT applies to income from dividends, interest, capital gains, rental and royalty income, and more.
Who Needs to Pay Net Investment Income Tax?
You may be required to pay NIIT if your income exceeds these thresholds:
- $200,000 for single filers
- $250,000 for married couples filing jointly
- $125,000 for married couples filing separately
- $250,000 for qualifying widow(er)s with dependent children
- $200,000 for head of household filers
Steps for Calculating Net Investment Income Tax
- Determine NII: Calculate income from sources like interest, dividends, and capital gains.
- Check Your MAGI: Compare your modified adjusted gross income to the IRS thresholds.
- Calculate the NIIT: Apply the 3.8% tax to the lesser of NII or the amount by which MAGI exceeds the threshold.
Types of Income Subject to NIIT
| Type of Income | Subject to NIIT (Yes/No) |
| Interest from Savings and Bonds | Yes |
| Dividends | Yes |
| Capital Gains | Yes |
| Rental Income | Yes |
| Royalties | Yes |
| Wages | No |
| Social Security Benefits | No |
| Retirement Plan Distributions | No |
FAQs About Net Investment Income Tax
1. What types of income are subject to NIIT?
NIIT applies to interest, dividends, capital gains, rental income, and royalties. It does not apply to wages or retirement plan distributions.
2. Can I reduce my exposure to NIIT?
Yes, by using tax-efficient strategies such as tax-exempt investments or adjusting your portfolio, you can potentially reduce NIIT.
3. How do I report NIIT?
NIIT is reported on Form 8960, which calculates the total tax owed.
4. How do I avoid paying Net Investment Income Tax?
Invest in tax-exempt securities or reduce income below the NIIT threshold.
5. What form do I use to report Net Investment Income Tax?
Use Form 8960 to report and calculate NIIT.
6. Does Net Investment Income Tax apply to rental income?
Yes, rental income may be subject to NIIT if income exceeds the threshold.
If you have questions about the Net Investment Income Tax or need assistance with your tax planning, please don’t hesitate to reach out. Our team is here to help you navigate your tax obligations and optimize your investment strategies. Contact us today for personalized guidance tailored to your financial needs!