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 https://www.irs.gov/individuals/net-investment-income-tax

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

READ MORE  What is Best Mutual Funds ?

Leave a Comment