What Is the Net Investment Income Tax?
The Net Investment Income Tax (NIIT) is an additional 3.8% tax on the lesser of:
- Net investment income (NII), or
- The excess of modified adjusted gross income (MAGI) over certain threshold amounts.
This surtax applies in addition to regular income tax and self-employment tax and is reported on IRS Form 8960.
For official IRS details, see the IRS topic on Net Investment Income Tax (Topic No. 559).
Who Must Pay the NIIT?
The NIIT generally applies to individuals, estates, and trusts that have both:
- Net investment income (such as interest, dividends, capital gains, rental income, or royalty income), and
- Modified adjusted gross income (MAGI) above the applicable threshold.
The IRS provides guidance on how net investment income is defined and computed in its instructions for Form 8960.
Income Thresholds for 2025/2026
The NIIT applies only if MAGI exceeds the following thresholds (unchanged for 2025/2026 unless the IRS updates them officially):
- $250,000 for married filing jointly or qualifying widow(er)
- $200,000 for single filers or head of household
- $125,000 for married filing separately
If a taxpayer’s MAGI exceeds the relevant threshold, the NIIT is the lesser of net investment income or the MAGI excess over the threshold amount. The IRS provides threshold guidance in its Net Investment Income Tax topic.
Examples of Net Investment Income
Net investment income generally includes (but is not limited to):
- Interest and dividends
- Capital gains from the sale of stocks, bonds, and other investments
- Rental and royalty income
- Non-qualified annuities
- Income from businesses in which the taxpayer does not materially participate
Certain items are excluded, such as wage income, self-employment income, and distributions from qualified retirement plans. For a detailed list of inclusions and exclusions, see the IRS Form 8960 instructions.
How to Report the NIIT
The NIIT is reported and computed on IRS Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts. Taxpayers must attach Form 8960 to their federal income tax return (typically Form 1040 or 1041) when the tax applies.
Detailed line-by-line instructions, worksheets, and examples are included in the official IRS instructions for Form 8960.
Planning Considerations for 2025/2026
Tax professionals should review investment and income strategies to help clients manage or reduce their exposure to the NIIT, including:
- Timing the recognition of capital gains
- Evaluating rental activity and material participation rules
- Exploring tax-efficient investment structures
Strategies should be tailored to each taxpayer’s unique financial situation and in accordance with IRS rules. The IRS topic on NIIT (Topic No. 559) and Form 8960 instructions are essential references for tax planning.
