Form 8960 runs two income piles. MAGI decides whether the 3.8% net investment income tax turns on. Net investment income is the pile the tax can hit. W-2 wages can push MAGI over the statutory line and sit outside net investment income. Plan from brokerage income alone and you miss the switch. A high W-2 year plus a taxable brokerage account can trip the MAGI line on ordinary wages.
What is the net investment income tax?
The net investment income tax (NIIT) is a 3.8% tax under Internal Revenue Code section 1411 on certain net investment income of individuals, estates, and trusts whose income sits above a statutory MAGI threshold.
The IRS publishes the rule on its Net Investment Income Tax page and computes it on Form 8960. You attach Form 8960 when MAGI is greater than the threshold for your filing status.
How does Form 8960 use two income piles?
Form 8960 MAGI is the switch. Net investment income is the tax base. The 3.8% applies to the smaller of those two results: net investment income, or MAGI minus the threshold.
Section 1411 writes that lesser-of rule. IRS Questions and Answers on the Net Investment Income Tax walk the same split. MAGI answers whether you file and how much MAGI sits over the line. Net investment income answers which dollars the 3.8% can reach.
What MAGI threshold turns NIIT on?
Form 8960 uses $200,000 if you file single or head of household, $250,000 if you file jointly or as a qualifying surviving spouse, and $125,000 if you file married filing separately.
Those amounts are in the Form 8960 instructions and in the IRS Q&A table. The Q&A states that the threshold amounts are not indexed for inflation. Section 1411(b) writes the same dollars. The latest published Form 8960 instructions are for 2025. The individual lines stay those statutory figures for 2026 unless Congress amends the statute.
For most W-2 households, NIIT MAGI equals Form 1040 AGI. What MAGI is covers the Form 8960 add-back: excluded foreign earned income under section 911, plus extra CFC or PFIC adjustments if those apply.
What counts as net investment income?
Net investment income is interest, dividends, capital gains, rents, royalties, nonqualified annuities, income from a passive trade or business, and income from a trade or business of trading in financial instruments or commodities, minus deductions properly allocable to those items.
The IRS Q&A and Form 8960 Part I list those categories. Digital asset transactions can enter the same pile when they produce NII under section 1411(a).
The Q&A also lists items that stay off this pile: wages, unemployment compensation, operating income from a nonpassive business, Social Security benefits, alimony, tax-exempt interest, self-employment income subject to section 1401(b), and distributions from plans described in sections 401(a), 403(a), 403(b), 408, 408A, or 457(b).
A sale of appreciated stock is NII. A loan against the same shares does not create Form 1040 income at funding, so it does not raise MAGI or NII at that step. Buy, borrow, die covers that split and where it breaks.
Do W-2 wages get taxed by NIIT?
Wages raise Form 8960 MAGI. MAGI is the switch. The IRS Q&A lists wages among income that stays off the NII pile. Wages sit in AGI. A single return with $190,000 of W-2 wages and $20,000 of dividends has MAGI of $210,000 if no other adjustments apply. MAGI is $10,000 over the $200,000 single line. NII is $20,000. The 3.8% hits the smaller figure, $10,000. The wages flipped the switch. The dividends are the pile the tax reached.
Tax strategies for high-income W-2 employees is the year-level projection that includes those wages before you sell or convert.
How do you calculate the 3.8% on Form 8960?
You take 3.8% of the smaller of net investment income or MAGI minus the threshold.
The IRS Q&A gives this example. A single filer has $180,000 of wages and $90,000 of NII from a passive partnership. MAGI is $270,000. MAGI exceeds the $200,000 single threshold by $70,000. NII is $90,000. NIIT is 3.8% of $70,000, or $2,660.
A second IRS example stays under the line. A single filer has $180,000 of wages and $15,000 of dividends and capital gains. MAGI is $195,000. That MAGI is under $200,000, so no NIIT is due even though NII exists.
Form 8960 line 13 is MAGI. Line 14 is the threshold. Line 17 is the tax for individuals.
Does a Roth conversion count as NIIT income?
The taxable part of a Roth conversion raises AGI, so it raises NIIT MAGI. Distributions from a Roth IRA (section 408A) stay off the NII pile on the IRS Q&A list. The conversion moves MAGI. How a Roth conversion counts as income covers that MAGI lift. Size the conversion against the Form 8960 switch, not against the conversion dollars alone.
How does Nino model NIIT?
Nino builds Form 8960 MAGI and net investment income as two piles on the same household file, with a CFP and a CPA on those numbers for 1 flat annual fee.
The work is whether MAGI is over the statutory line, which dollars sit in NII, and how a wage year, a sale, or a conversion moves each pile.
Book a demo if you want that Form 8960 map before you sell or convert. Every Advisor Plan includes a 30-day money-back guarantee.