Net Investment Income Tax

Net Investment Income Tax

The Net Investment Income Tax (NIIT) is a 3.8% surtax that applies to investment income for certain taxpayers in the United States. It’s essentially an additional tax on top of your regular income tax.

Here’s a breakdown of the key points:

  • Who it applies to: Individuals, estates, and trusts. However, there are income thresholds you need to exceed before the NIIT applies.
  • What it taxes: Net investment income, which includes things like:
    • Capital gains (both short-term and long-term)
    • Dividends (qualified and non-qualified)
    • Interest income (taxable)
    • Rental and royalty income
    • Passive income from investments you don’t actively manage
    • Business income from trading securities or commodities


  • How it’s calculated: The tax is applied to the lesser of two amounts:
    • Your net investment income
    • The amount by which your modified adjusted gross income (MAGI) exceeds the threshold for your tax filing status.
  • Thresholds: The thresholds are adjusted periodically, but you can find the current ones on the IRS website

In short, you only pay NIIT if your investment income is high enough AND your overall income exceeds a certain level.

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