The 3.8% Net Investment Income Tax hits high earners on dividends, capital gains, interest and rental income. See if you owe it and how much. ✓ IRS thresholds
3.8% surtax • Investment income
The NIIT is a 3.8% surtax on investment income for higher earners, on top of regular income and capital-gains tax. It applies to the lesser of (a) your net investment income or (b) the amount your modified AGI exceeds the threshold: $200,000 single, $250,000 married filing jointly, $125,000 married filing separately. These thresholds are not inflation-adjusted, so more taxpayers owe it over time.
Net investment income includes taxable interest, dividends, capital gains, rental and royalty income, and annuities — but not wages, Social Security, or tax-exempt municipal bond interest. Estimate only; not tax advice.
The net investment income tax is a 3.8% surcharge on investment income for higher earners, introduced with the Affordable Care Act. Its structure is unusual: it applies to the LESSER of net investment income or the amount by which modified AGI exceeds a threshold — $200,000 single, $250,000 married filing jointly. Those thresholds have never been indexed for inflation, so the tax reaches steadily further down the income distribution each year. Wages and self-employment income are excluded, because they already bear the Additional Medicare Tax at 0.9%.
NIIT = 3.8% × lesser of (net investment income) or (MAGI − threshold)Thresholds: $200,000 single · $250,000 MFJ · $125,000 MFSNII includes: interest, dividends, capital gains, rents, royalties, passive incomeNII excludes: wages, self-employment income, retirement distributions, municipal interestwhere:
Assumptions: Thresholds are not inflation-indexed. Distributions from IRAs and 401(k)s are not NII but do raise MAGI, which can pull other investment income into the tax.
Apply the lesser-of rule, then show how it behaves close to the threshold.
Result$1,710 of NIIT — 3.8% on the full $45,000
The lesser-of rule means the tax phases in gradually rather than hitting a cliff. It also means managing MAGI matters: deferring a bonus or harvesting losses to keep MAGI under the threshold can eliminate the tax entirely, even with substantial investment income.
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