The net investment income tax (NIIT) is a 3.8% tax imposed on the net investment income of certain U.S. individuals, trusts, and estates.

Under Section 1411(a)(1), in the case of an individual, a 3.8% tax shall apply to the lesser of a taxpayer’s net investment income for the year or the excess of the taxpayer’s modified adjusted gross income (AGI) over a threshold amount.

What Individuals are Subject to the Tax?

1Individuals will owe the NIIT if they have investment income and their modified AGI is above the following thresholds:

If a taxpayer’s modified AGI is below those thresholds, the taxpayer does not have to pay the NIIT on their net investment income. Taxpayers can find more information on the NIIT on the IRS website.

Example NIIT Calculation

John Doe is a single-filing taxpayer. For the 2023 tax year, his wages on Form W-2 (Wage and Tax Statement) were $185,000, and his total investment income was $25,000 in dividend distributions. John’s AGI and modified AGI are both $210,000.

John’s modified AGI exceeds the single-filing threshold by $10,000 (i.e., $210,000 minus $200,000 = $10,000). John owes the 3.8% NIIT on $10,000 of net investment income. John must add $380 of taxes to his income tax return.

Example Where Taxpayer is NOT Liable for NIIT

Adam Smith is a single-filing taxpayer with wages of $85,000 and an investment income of $5,000. Adam’s total modified AGI is $90,000. Adam must pay regular federal income taxes on his $5,000 investment income; however, he is not liable for the additional 3.8% NIIT because his AGI does not exceed the $200,000 threshold for single-filing taxpayers.

Sample Video Tutorial

Please view our video tutorial here on how to prepare Form 8960 for the 2020 tax year.

Additional Information

Taxpayers can find more information on the NIIT by reading the Form 8960 instructions.

  1. Income thresholds as of the 2023 tax year ↩︎