The net investment income tax (NIIT) is an additional 3.8% federal tax on certain investment income. For individuals, it applies to the smaller of your net investment income or the amount your modified adjusted gross income exceeds the filing-status threshold. The thresholds are $200,000 for single filers and $250,000 for married couples filing jointly. Wages can push you over the threshold, but NIIT does not tax the wages themselves.
What is the net investment income tax?
NIIT can apply on top of the regular tax on interest, dividends, capital gains, and other investment income. Crossing the threshold does not make every dollar of income subject to another 3.8% tax.
This guide covers individuals. Estates and trusts have separate rules and thresholds. The IRS NIIT questions and answers explain both.
How does Form 8960 use two income amounts?
The calculation needs two numbers:
- Net investment income: the investment income covered by NIIT, less eligible expenses allocated to it.
- Income above the threshold: your NIIT modified adjusted gross income (MAGI), minus the threshold for your filing status.
Multiply the smaller positive amount by 3.8%. If either amount is zero, there is no NIIT.
For example, $20,000 of investment income with income only $5,000 above the threshold produces $190 of NIIT: $5,000 × 3.8%. Only the $5,000 is exposed to the tax. Form 8960 performs this comparison.
What MAGI threshold turns NIIT on?
| Filing status | MAGI threshold |
|---|---|
| Single | $200,000 |
| Head of household | $200,000 |
| Married filing jointly | $250,000 |
| Qualifying surviving spouse | $250,000 |
| Married filing separately | $125,000 |
These individual thresholds are not adjusted for inflation. They apply in 2026 as well as prior years under the current rule.
For many U.S. households, NIIT MAGI equals adjusted gross income. People using the foreign earned income exclusion, or holding certain foreign corporations or funds, may need adjustments. Use the NIIT definition of MAGI; other tax rules calculate it differently.
What counts as net investment income?
| Included | Excluded |
|---|---|
| Taxable interest, dividends | Wages |
| Taxable capital gains | Muni bond interest |
| Rentals and royalties | Social Security |
| Passive business income | Most retirement plan payouts |
| Some nonqualified annuities | Most nonpassive business income |
“Net” means eligible deductions can reduce the covered income. Business and rental classifications need care: material participation, the type of business, and other rules can change the result. Trading businesses have special treatment.
For a home sale, gain excluded from regular taxable income under the principal-residence exclusion is also excluded from NIIT. Any taxable gain above the exclusion can count. A large sale price alone does not tell you the NIIT bill.
Do W-2 wages get taxed by NIIT?
No. But wages can raise your MAGI enough to expose investment income to NIIT.
Suppose a single filer has $190,000 of wages and $20,000 of dividends, with no other income or adjustments. MAGI is $210,000, or $10,000 above the threshold. Net investment income is $20,000. NIIT is $380, calculated on the smaller $10,000 amount.
This is separate from Additional Medicare Tax, which applies to certain earned income. The two taxes have different income bases even though their individual income thresholds can look similar.
How do you calculate the 3.8% on Form 8960?
Compare three hypothetical single filers, assuming the investment income shown is all covered by NIIT and there are no other adjustments:
| Wages | Investment income | MAGI | Over $200,000 | NIIT |
|---|---|---|---|---|
| $180,000 | $15,000 | $195,000 | $0 | $0 |
| $180,000 | $90,000 | $270,000 | $70,000 | $2,660 |
| $240,000 | $20,000 | $260,000 | $60,000 | $760 |
In the middle example, income above the threshold limits the tax. In the last, investment income limits it. Applying 3.8% to the entire $260,000 in that last row would badly overstate the tax.
Use the household’s projected annual income when planning a stock sale. A year-end bonus can change how much of an earlier gain is subject to NIIT. Capital losses may reduce net gains, but a proposed tax-loss sale still needs to satisfy the applicable loss and wash-sale rules.
Does a Roth conversion count as NIIT income?
A taxable Roth conversion is generally excluded from net investment income, but it raises MAGI. That can expose investment income you already have to NIIT.
Consider a married couple filing jointly with $240,000 of MAGI, including $20,000 of covered investment income. They initially owe no NIIT. A $30,000 taxable Roth conversion takes MAGI to $270,000. They are now $20,000 above the $250,000 threshold, so the $20,000 of investment income produces $760 of NIIT.
That $760 is in addition to the ordinary income tax on the taxable conversion. That is why a Roth conversion projection should include the whole return rather than only the tax bracket applied to the converted amount.