What is Net Investment Income Tax (NIIT) And Do You Have to Pay It?
As of 2025, many high-income earners in the U.S. are subject to a lesser-known tax called the Net Investment Income Tax, or NIIT. It’s important to understand how this tax works, who it applies to, and — most importantly — whether you need to pay it.
Let’s break it down.
What is NIIT?
The Net Investment Income Tax (NIIT) is a 3.8% federal tax that applies to certain types of investment income, if your income exceeds specific thresholds.
It was introduced in 2013 under the Affordable Care Act (Obamacare) as a way to increase revenue from higher-income households.
Who Has to Pay NIIT?
You may owe NIIT if your Modified Adjusted Gross Income (MAGI) is above the following thresholds:
| Filing Status | MAGI Threshold |
|---|---|
| Single | $200,000 |
| Married Filing Jointly | $250,000 |
| Married Filing Separately | $125,000 |
| Head of Household / Widow(er) | $200,000 |
What Types of Income Are Subject to NIIT?
- NIIT applies to "net investment income", which may include:
- Interest income (from savings accounts, bonds)
- Dividends (from stocks or mutual funds)
- Capital gains (from selling stocks, crypto, real estate, etc.)
- Rental income (unless you're a real estate professional)
- Royalties
- Passive income from businesses where you're not materially involved
NIIT does not apply to:
- Wages and salaries
- Self-employment income
- Social Security benefits
- Distributions from most retirement accounts (e.g., 401(k), traditional IRA)
- Tax-exempt municipal bond interest
How Is NIIT Calculated?
The tax is 3.8% of the lesser of:
- Your net investment income, or
- The amount your MAGI exceeds the threshold for your filing status
Example:
- Your MAGI = $270,000
- Filing status: Married filing jointly (threshold = $250,000)
- Net investment income = $50,000
- Excess over threshold = $20,000
NIIT = 3.8% × $20,000 = $760
How to Report and Pay NIIT
If you owe NIIT, you must:
- File IRS Form 8960 along with your Form 1040
- Most tax software (like TurboTax, H&R Block, etc.) includes Form 8960 automatically if it detects you're liable
- If you’re self-employed or receive large investment income throughout the year, consider making estimated tax payments to avoid penalties
Do You Need to Pay NIIT?
To find out if you owe NIIT, ask yourself:
- Is my MAGI above the threshold for my filing status?
- Do I have investment income (interest, capital gains, rental, dividends)?
- Is the lower of those two amounts greater than zero?
If yes, you likely owe NIIT.
If no, you’re in the clear — for now.
Summary
| Topic | Key Info |
|---|---|
| What is NIIT? | 3.8% federal tax on net investment income |
| Who pays it? | Those with high MAGI (above $200K or $250K depending on status) |
| Income types | Capital gains, dividends, interest, rental, royalties |
| Excluded income | Wages, Social Security, retirement withdrawals |
| How to file | Include IRS Form 8960 with your tax return |
Final Thoughts
The Net Investment Income Tax can surprise high earners — especially those with capital gains or rental income. If you're unsure whether you owe NIIT, it's smart to run the numbers or talk to a tax professional.
And remember: Just because you have investment income doesn’t mean you owe NIIT — it depends on your total income.