Short Answer
The Net Investment Income Tax (NIIT) is a 3.8% tax on investment income that applies to the smaller of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds $250,000 on a joint return, $125,000 married filing separately, or $200,000 for everyone else. The thresholds are statutory and never inflation-adjusted, so they are identical for 2025 and 2026. Net investment income covers interest, dividends, capital gains, rents, and royalties, but never wages, self-employment income, Social Security, or retirement plan distributions. You compute it on Form 8960 and report it on Schedule 2, line 12. Unlike the Additional Medicare Tax, nothing is withheld for the NIIT, so plan for it with estimated payments.
How This Is Calculated
This calculator follows IRS Form 8960, which has three parts. Part I totals your investment income, Part II subtracts allocable expenses to reach net investment income, and Part III applies the 3.8% to the lesser of net investment income or your MAGI over the threshold (IRC §1411). For the full background, see our Net Investment Income Tax Guide.
Step 1: Total Your Investment Income (Part I, Lines 1-8) Confirmed
Add taxable interest (line 1), dividends (line 2), annuities and net rental, royalty, and passive business income (lines 3-4a), and net gain from the disposition of property (line 5a). The sum is total investment income on line 8. Tax-exempt interest, wages, self-employment income, and active-business income are excluded.
Step 2: Subtract Allocable Investment Expenses (Part II, Lines 9-11) Confirmed
Deduct expenses properly allocable to investment income: investment interest expense (line 9a) and the state, local, and foreign income tax allocable to net investment income (line 9b). Miscellaneous investment expenses on line 9c are suspended under IRC §67(g), so they are not deductible. The result is net investment income on line 12.
Step 3: Compute MAGI Over the Threshold (Part III, Lines 13-15) Confirmed
Your MAGI (line 13) is AGI plus any foreign earned income excluded under §911. Subtract your filing-status threshold (line 14) to get the MAGI excess (line 15). If MAGI is at or below the threshold, this is zero and you owe no NIIT no matter how large your investment income is.
Step 4: Apply 3.8% to the Smaller Amount (Lines 16-17) Confirmed
The tax base on line 16 is the smaller of net investment income (line 12) or the MAGI excess (line 15). The NIIT on line 17 is 3.8% of that base. It carries to Schedule 2 (Form 1040), line 12 and joins your total tax.
The lesser-of rule is the whole story: the 3.8% never applies to more than your MAGI cushion above the threshold. A single filer with $200,000 of investment income but MAGI of only $210,000 pays on $10,000, not $200,000. The same filer with MAGI of $500,000 pays on the full $200,000. This is why a one-time spike (a big capital gain, a Roth conversion, an inherited IRA distribution) that lifts MAGI can suddenly expose investment income that sat untaxed for years. Confirmed
Assumptions
- Thresholds per IRC §1411(b); identical for 2025 and 2026 (never indexed).
- On a joint return, enter combined investment income, combined expenses, and combined MAGI.
- The calculator treats your entries as already net of the Form 8960 line 4b/5b adjustments for non-investment income; enter only amounts that are net investment income.
- Home-sale gain excluded under §121 should be left out of capital gains; only the taxable excess is net investment income.
- Miscellaneous investment expenses (line 9c) are suspended under §67(g) and are not deductible.
- Estates and trusts use the §1(e) top-bracket threshold, not the individual amounts, and are out of scope for this tool.
Frequently Asked Questions
What is the Net Investment Income Tax?
The Net Investment Income Tax (NIIT) is a 3.8% tax on investment income for higher-income taxpayers, created by the Affordable Care Act and effective for tax years beginning after December 31, 2012. Under IRC section 1411 it applies to the smaller of your net investment income or the amount by which your modified adjusted gross income exceeds a filing-status threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for everyone else. It is computed on Form 8960 and reported on Schedule 2, line 12 of Form 1040.
What income is subject to the 3.8% NIIT?
Net investment income includes taxable interest, dividends, annuities, royalties, rents, net capital gains and other gains from the disposition of property, and income from passive business activities or trading in financial instruments and commodities, reduced by allocable investment expenses. It does not include wages, self-employment income, Social Security benefits, tax-exempt interest, distributions from qualified retirement plans and IRAs, or income from an active trade or business. Gain on the sale of a main home excluded under the section 121 exclusion is also outside net investment income.
What are the NIIT income thresholds?
The modified adjusted gross income thresholds are $250,000 for married filing jointly and qualifying surviving spouse, $125,000 for married filing separately, and $200,000 for single and head of household filers. They are written directly into IRC section 1411(b) and are not indexed for inflation, so they have been the same since the tax took effect in 2013. MAGI for the NIIT is your adjusted gross income increased by any foreign earned income excluded under section 911.
How is the Net Investment Income Tax calculated?
The NIIT equals 3.8% of the lesser of two amounts: your net investment income, or the excess of your modified adjusted gross income over your filing-status threshold. Because it is the smaller of the two, a taxpayer just over the threshold pays on only the MAGI excess, while a taxpayer far over the threshold pays on their full net investment income. For example, a single filer with $60,000 of net investment income and $260,000 of MAGI pays 3.8% of the smaller of $60,000 and $60,000 ($260,000 minus $200,000), which is $2,280.
Does the NIIT apply to capital gains from selling my home?
Only the taxable portion. Gain on the sale of a main home that you exclude under the IRC section 121 exclusion ($250,000 single, $500,000 married filing jointly) is not net investment income. Any gain above the exclusion is a capital gain that does count toward net investment income, and combined with a high-income year a large home sale can push MAGI over the threshold and pull the taxable gain into the 3.8% base. Gain on a second home or pure investment property is fully included.
Is the NIIT the same as the Additional Medicare Tax?
No, they are two separate Affordable Care Act surtaxes that share the same dollar thresholds. The 3.8% Net Investment Income Tax under section 1411 applies to investment income measured against MAGI on Form 8960. The 0.9% Additional Medicare Tax under section 3101(b)(2) applies to earned income (wages and self-employment income) on Form 8959. A high earner can owe both in the same year, but never both on the same dollar: portfolio income faces the 3.8% and earned income faces the 0.9%.
Do retirement account distributions count as net investment income?
No. IRC section 1411(c)(5) specifically excludes distributions from qualified plans and arrangements under sections 401(a), 403(a), 403(b), 408, 408A, and 457(b), so distributions from a 401(k), traditional or Roth IRA, 403(b), or governmental 457(b) are never net investment income. However, those distributions are part of your adjusted gross income, so a large taxable IRA or 401(k) withdrawal raises your MAGI and can push other investment income over the threshold into the 3.8% tax even though the distribution itself is not taxed by the NIIT.
Where does the Net Investment Income Tax go on my tax return?
You compute the tax on Form 8960. The result from Form 8960, line 17 goes on Schedule 2 (Form 1040), line 12 and is added to your total tax. The NIIT is never withheld at the source, so unlike the Additional Medicare Tax there is no withholding credit; if you expect to owe it you cover it through estimated tax payments or extra income tax withholding to avoid an underpayment penalty under section 6654.
What To Do Next
If Your MAGI Is Near the Threshold
Estimate your MAGI before year-end. If you are within reach of $200,000 (single) or $250,000 (joint), even a modest dividend or gain can land in the 3.8% base. Confirm your MAGI with the AGI and MAGI Calculator first.
If You Are Planning a Large Sale or Conversion
A big capital gain, a Roth conversion, or an inherited-account distribution can lift MAGI and expose investment income that was untaxed for years. Where possible, split the event across two tax years. Model the income-tax side of a gain with the Qualified Dividends & Capital Gains Tax Calculator.
For the Full Background
Read the Net Investment Income Tax Guide for the statutory thresholds, the lesser-of rule, what counts as net investment income, the qualified-plan and home-sale exclusions, and the Form 8960 walkthrough.