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The Net Investment Income Tax (NIIT) is a 3.8% tax imposed on certain net investment income of individuals, estates, and trusts that exceed specific income thresholds. It was introduced as part of the Affordable Care Act in 2013.
Who Pays the NIIT?
The tax applies to individuals with Modified Adjusted Gross Income (MAGI) over the following thresholds:
• $250,000 for Married Filing Jointly or Qualifying Widow(er)
• $125,000 for Married Filing Separately
• $200,000 for Single or Head of Household
These thresholds are not indexed for inflation, meaning they’ve remained the same since the tax was introduced.
What Income Is Subject to the NIIT?
The 3.8% tax applies to the lesser of:
1. Your net investment income, or
2. The amount by which your MAGI exceeds the threshold for your filing status.
Net investment income includes:
• Interest
• Dividends
• Capital gains (including from the sale of stocks, bonds, real estate, etc.)
• Rental and royalty income
• Non-qualified annuities
• Income from passive activities
• Income from businesses involved in trading financial instruments or commodities
What’s Not Subject to the NIIT?
• Wages and self-employment income
• Social Security benefits
• Tax-exempt interest
• Distributions from qualified retirement plans (401(k), IRA, etc.)
• Gains from the sale of a principal residence (up to the exclusion limit of $250,000 single / $500,000 married filing jointly)
Example Calculation:
• Married Couple (Filing Jointly)
• MAGI: $300,000
• Net Investment Income: $50,000
• Threshold: $250,000
Excess MAGI: $300,000 - $250,000 = $50,000
The NIIT applies to the lesser of $50,000 (excess MAGI) or $50,000 (net investment income).
NIIT: 3.8% × $50,000 = $1,900
Key Takeaways:
• Only applies if your MAGI exceeds the threshold.
• Focuses on investment income, not earned income like wages.
• Planning opportunities exist, like managing capital gains or using tax-advantaged accounts, to reduce exposure.
Just plan for your federal capital gains rate to be 23.8% and then move on in life
Thanks
Tried googling about it but ended up confused. Feels like a lot of people on this app/bowl would have to pay this with the 250k MFJ threshold but just haven’t heard anything about it so was confused if this was the case.
Yes. A lot of people here pay it. Just nothing we can about it
Thanks everyone! Seems like it’s just something we have to live with. Was very surprised I had never heard about it before