What Are the NIIT Income Thresholds?

The Net Investment Income Tax, or NIIT, is a 3.8% tax applied to certain investment income for individuals, estates, and trusts with income above specific levels. This tax, part of the Health Care and Education Reconciliation Act of 2010, became effective in 2013. It operates in addition to regular income taxes. Whether an individual owes this tax depends on a two-part assessment involving both their income level and the amount of their investment-related earnings.

Determining if the Threshold Applies to You

To determine if you are subject to the Net Investment Income Tax, first compare your income to established thresholds. These thresholds are based on your tax filing status and have not been indexed for inflation. For individuals who are Single or Head of Household, the threshold is $200,000. For those who are Married Filing Jointly or a Qualifying Surviving Spouse, the threshold is $250,000, and for those Married Filing Separately, it is $125,000.

The income figure used for this comparison is your Modified Adjusted Gross Income (MAGI). For most taxpayers, MAGI is the same as their Adjusted Gross Income (AGI) found on their Form 1040 tax return. However, for U.S. citizens or residents who live and work abroad, MAGI is calculated by taking their AGI and adding back any foreign-earned income exclusion. If your MAGI is below the threshold for your filing status, you are not subject to the NIIT.

For estates and non-grantor trusts, a different threshold applies. They are subject to the NIIT if their AGI exceeds the dollar amount for the beginning of the highest tax bracket for that year, which is $15,650 for 2025.

Identifying Your Net Investment Income

After determining your MAGI exceeds the relevant threshold, the next step is to identify the income streams that constitute Net Investment Income (NII). The calculation of NII involves summing up all includable investment income and then subtracting certain deductible expenses directly related to generating that income.

Income Included in NII

The Internal Revenue Service defines several categories of income that are included in NII.

• Interest, dividends, and capital gains from the sale of assets like stocks, bonds, and mutual funds
• Rental and royalty income, unless they are derived from a trade or business in which the taxpayer actively participates
• Income from a business if it is a passive activity, meaning the taxpayer does not materially participate in its operations
• Income from the business of trading in financial instruments or commodities
• The taxable portion of payments from non-qualified annuities

Income Excluded from NII

Certain income sources are explicitly excluded from NII.

• Wages and salaries earned from employment
• Income from self-employment, provided it is from a trade or business where you are an active participant
• Distributions from qualified retirement plans, such as 401(k)s, traditional and Roth IRAs, and defined benefit pensions
• Social Security benefits and unemployment compensation
• Alimony
• Interest earned from tax-exempt municipal bonds
• Proceeds from a life insurance policy paid upon the death of the insured

Calculating Your NIIT Liability

Once your MAGI is over the threshold and you have calculated your NII, you can figure your NIIT liability. The tax is levied on the lesser of two amounts: your total Net Investment Income, or the amount by which your MAGI exceeds the threshold for your filing status.

For example, consider a single filer with a MAGI of $240,000 and NII of $50,000. The MAGI threshold for a single filer is $200,000. The excess MAGI is $40,000 ($240,000 – $200,000). Since the $40,000 excess is less than the $50,000 of NII, the 3.8% tax is applied to $40,000, resulting in an NIIT of $1,520.

This calculation is formally completed on IRS Form 8960, Net Investment Income Tax. The form walks you through listing your investment income, subtracting allowable expenses, and then comparing your NII to your excess MAGI. The final tax liability calculated on Form 8960 is the amount you owe.

Reporting and Paying the Tax

The NIIT amount calculated on Form 8960 must be reported and paid with your annual income tax filing. The total NIIT liability is transferred to your Form 1040, where it is included in the “Other Taxes” section and added to your total tax liability for the year.

To avoid potential underpayment penalties, the NIIT must be paid throughout the year. You can increase the amount of federal income tax withheld from your wages by submitting a revised Form W-4 to your employer. Alternatively, you can make quarterly estimated tax payments directly to the IRS using Form 1040-ES, Estimated Tax for Individuals. This approach is common for taxpayers with significant income from sources not subject to withholding.